Form 6-K ABSOLUTE SOFTWARE CORP For: Feb 09

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February 10, 2021 6:04 AM EST

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 6-K

REPORT OF FOREIGN PRIVATE ISSUER

PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of February 2021

Commission File Number: 001-39663

Absolute Software Corporation

(Exact name of Registrant as specified in its charter)

N/A

(Translation of Registrant’s name)

Suite 1400

Four Bentall Centre, 1055 Dunsmuir Street

Vancouver, British Columbia

V7X 1K8 Canada

(604) 730-9851

(Address and telephone number of registrant’s principal executive offices)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F.

☐ Form 20-F ☒ Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1): ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7): ☐

INCORPORATION BY REFERENCE

Exhibits 99.1, 99.2, 99.3 and 99.4 of this Form 6-K are hereby filed and incorporated by reference into the registrant’s Registration Statement on Form F-10 (File No. 333- 249661) and Registration Statement on Form S-8 (File No. 333-251422).

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


	Absolute Software Corporation

Date: February 9, 2021	By:	/s/ Steven Gatoff
		Name:	Steven Gatoff
		Title:	Chief Financial Officer

Form 6-K Exhibit Index


Exhibit Number		Document Description

99.1		Interim Condensed Consolidated Financial Statements for the Three and Six Months Ended December 31, 2020 and 2019
99.2		Second Quarter Fiscal 2021 Management’s Discussion and Analysis for the Three and Six Months Ended December 31, 2020
99.3		Certification of Interim Filings – Chief Executive Officer
99.4		Certification of Interim Filings – Chief Financial Officer
99.5		Press Release dated February 9, 2021

Exhibit 99.1

Interim Condensed Consolidated Financial Statements of

ABSOLUTE SOFTWARE CORPORATION

Three and six months ended December 31, 2020 and 2019

(Unaudited)

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Financial Position

(Expressed in United States dollars unless otherwise noted) (Unaudited)

Notes

December 31, 2020

June 30, 2020

ASSETS

CURRENT

Cash and cash equivalents

(Note 12)

131,624,219

29,727,498

Short-term investments

(Note 3)

359,832

17,350,152

Trade and other receivables

(Note 4)

22,287,648

28,990,235

Income tax receivable

545,291

111,769

Prepaid expenses and other

5,276,540

2,541,183

Contract acquisition assets – current

(Note 5)

8,323,010

7,501,339

168,416,540

86,222,176

PROPERTY AND EQUIPMENT

4,435,336

5,563,327

RIGHT OF USE ASSETS

(Note 6)

11,359,960

9,181,927

DEFERRED INCOME TAX ASSETS

(Note 11)

22,357,305

22,278,745

CONTRACT ACQUISITION ASSETS

(Note 5)

6,274,576

5,842,845

GOODWILL

1,100,000

1,100,000

213,943,717

130,189,020

LIABILITIES

CURRENT

Trade and other payables

(Note 7)

21,736,334

20,129,253

Income tax payable

22,777

382,041

Lease liabilities – current

(Note 8)

2,532,627

1,724,730

Deferred revenue – current

(Note 10(b))

86,028,052

80,843,795

110,319,790

103,079,819

LEASE LIABILITIES

(Note 8)

10,433,103

8,411,101

DEFERRED REVENUE

(Note 10(b))

68,060,788

61,759,629

188,813,681

173,250,549

SHAREHOLDERS’ EQUITY (DEFICIENCY)

Share capital

(Note 9(b))

147,976,213

81,890,311

Equity reserve

41,127,123

38,523,835

Treasury shares

(263,840

)

(263,840

)

Accumulated other comprehensive income

590,038

—

Deficit

(164,299,498

)

(163,211,835

)

25,130,036

(43,061,529

)

213,943,717

130,189,020

SUBSEQUENT EVENTS (Note 15)

Approved on behalf of the Board on February 8, 2021:


(signed) “Daniel P. Ryan”				(signed) “Lynn Atchison”
Daniel P. Ryan, Director				Lynn Atchison, Director

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

- 1 -

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)


			Three months ended December 31,						Six months ended December 31,
	Notes		2020			2019			2020			2019
REVENUE			$	29,857,255		$	25,797,614		$	58,352,812		$	51,450,103
COST OF REVENUE				3,355,200			3,022,265			6,470,607			6,255,632

GROSS MARGIN				26,502,055			22,775,349			51,882,205			45,194,471

OPERATING EXPENSES
Sales and marketing				10,190,776			9,521,739			20,274,315			19,040,524
Research and development				5,824,261			4,185,723			10,885,955			7,925,309
General and administration				4,855,655			4,111,620			8,298,684			7,436,477
Share-based compensation		(Note 9(h))		2,553,776			1,070,385			5,146,781			2,237,186

				23,424,468			18,889,467			44,605,735			36,639,496

OPERATING INCOME				3,077,587			3,885,882			7,276,470			8,554,975

OTHER EXPENSE
Finance income, net				3,429			128,605			25,365			240,746
Interest expense – lease liabilities				(142,685	)		(126,727	)		(281,334	)		(257,928	)
Foreign exchange loss				(299,711	)		(40,426	)		(485,938	)		(53,245	)

				(438,967	)		(38,548	)		(741,907	)		(70,427	)

NET INCOME BEFORE INCOME TAXES				2,638,620			3,847,334			6,534,563			8,484,548
INCOME TAX EXPENSE		(Note 11)		(736,000	)		(1,137,000	)		(2,030,000	)		(2,323,000	)

NET INCOME				1,902,620			2,710,334			4,504,563			6,161,548
UNREALIZED GAIN ON DERIVATIVES, NET OF TAX				559,811			—			590,038			—

COMPREHENSIVE INCOME			$	2,462,431		$	2,710,334		$	5,094,601		$	6,161,548

BASIC INCOME PER SHARE			$	0.04		$	0.06		$	0.10		$	0.15

DILUTED INCOME PER SHARE			$	0.04		$	0.06		$	0.09		$	0.14

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
BASIC				48,982,816			41,722,849			45,801,889			41,723,856

DILUTED				52,246,460			43,859,350			49,065,830			43,848,893

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

- 2 -

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

(Expressed in United States dollars unless otherwise noted) (Unaudited)


	Share Capital
	Number of Common shares			Amount			Equity reserve			Treasury shares			Accumulated Other Comprehensive Income		Deficit			Total
BALANCE, JUNE 30, 2019		41,645,552		$	76,778,014		$	36,744,933		$	(359,973	)	$	—	$	(163,778,642	)	$	(50,615,668	)
Shares issued on options exercised		135,862			912,602			(161,710	)		—			—		—			750,892
Shares issued under Employee Share Purchase Plan (“Prior ESOP”)		35,963			180,842			—			—			—		—			180,842
Shares issued under Performance and Restricted Share Unit plan (“RSU”)		483,927			2,395,678			(2,493,580	)		96,133			—		—			(1,769	)
Share-based compensation		—			—			2,032,226			—			—		—			2,032,226
Dividends paid		—			—			—			—			—		(5,021,806	)		(5,021,806	)
Net income and total comprehensive income		—			—			—			—			—		6,161,548			6,161,548

BALANCE, DECEMBER 31, 2019		42,301,304			80,267,136			36,121,869			(263,840	)		—		(162,638,900	)		(46,513,735	)
Shares issued on options exercised		150,406			1,149,183			(254,527	)		—			—		—			894,656
Shares issued under Prior ESOP		36,060			188,230			—			—			—		—			188,230
Shares issued under RSU		56,425			301,671			(301,671	)		—			—		—			—
Shares repurchased and cancelled		(8,700	)		(15,909	)		—			—			—		(32,919	)		(48,828	)
Share-based compensation		—			—			2,958,164			—			—		—			2,958,164
Dividends paid		—			—			—			—			—		(5,013,177	)		(5,013,177	)
Net income and total comprehensive income		—			—			—			—			—		4,473,161			4,473,161

BALANCE, JUNE 30, 2020		42,535,495			81,890,311			38,523,835			(263,840	)		—		(163,211,835	)		(43,061,529	)
Shares issued for cash (Note 9(b))		6,272,727			68,999,997			—			—			—		—			68,999,997
Share issuance cost		—			(5,120,793	)		—			—			—		—			(5,120,793	)
Shares issued on options exercised		75,244			557,956			(106,708	)		—			—		—			451,248
Shares issued under Employee Stock Ownership Plan		30,508			165,662			—			—			—		—			165,662
Shares issued under RSU		263,725			1,483,080			(1,483,080	)		—			—		—			—
Share-based compensation		—			—			4,193,076			—			—		—			4,193,076
Dividends paid		—			—			—			—			—		(5,592,226	)		(5,592,226	)
Net income and total comprehensive income		—			—			—			—			590,038		4,504,563			5,094,601

BALANCE, DECEMBER 31, 2020		49,177,699		$	147,976,213		$	41,127,123		$	(263,840	)	$	590,038	$	(164,299,498	)	$	25,130,036

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

- 3 -

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Cash Flows

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

Three months ended
December 31,

Six months ended
December 31,

Notes

2020

2019

2020

2019

OPERATING ACTIVITIES

Net income

1,902,620

2,710,334

4,504,563

6,161,548

Items not involving cash

Depreciation of property and equipment

811,436

846,050

1,677,649

1,671,194

Amortization of right of use assets

(Note 6)

606,691

413,336

1,096,502

826,673

Amortization of contract acquisition assets

(Note 5)

2,632,390

2,103,603

5,172,455

4,352,898

Share-based compensation

(Note 9(h))

2,553,776

1,070,385

5,146,781

2,237,186

Deferred income taxes

(Note 11)

(594,560

)

(108,615

)

(78,560

)

(476,396

)

Interest

272,932

(100,165

)

244,269

(199,272

)

Unrealized foreign exchange loss

325,119

65,631

481,683

56,840

Change in non-cash working capital

Trade and other receivables

1,657,214

(555,165

)

6,702,588

5,962,202

Income tax receivable

(409,634

)

84,406

(433,522

)

599,146

Prepaid expenses and other

(1,205,136

)

808,900

(2,735,357

)

1,162,717

Contract acquisition assets incurred

(Note 5)

(3,586,236

)

(1,669,443

)

(6,425,857

)

(3,092,689

)

Trade and other payables

3,017,263

(1,251,078

)

1,753,183

(3,813,540

)

Income tax payable

(135,115

)

21,932

(359,264

)

35,592

Accrued warranty

(83,409

)

(290,085

)

(115,000

)

(210,585

)

Deferred revenue

5,644,921

(1,976,458

)

11,485,416

(5,622,269

)

CASH FROM OPERATING ACTIVITIES

13,410,272

2,173,568

28,117,529

9,651,245

INVESTING ACTIVITIES

Purchase of property and equipment

(147,523

)

(713,409

)

(1,093,394

)

(2,362,562

)

Proceeds from maturities of short-term investments

6,594,202

16,410,000

17,027,384

23,280,000

Purchase of short-term investments

—

(13,796,274

)

—

(25,581,776

)

CASH FROM (USED IN) INVESTING ACTIVITIES

6,446,679

1,900,317

15,933,990

(4,664,338

)

FINANCING ACTIVITIES

Dividends paid

(Note 9(g))

(3,011,850

)

(2,512,563

)

(5,592,226

)

(5,021,806

)

Issuance of common shares

(Note 9(b))

69,325,213

905,135

69,701,544

1,056,261

Cost of common share issuance

(5,120,793

)

—

(5,120,793

)

—

Payment of lease liabilities

(Note 8)

(746,693

)

(417,862

)

(1,207,653

)

(827,727

)

CASH FROM (USED IN) FINANCING ACTIVITIES

60,445,877

(2,025,290

)

57,780,872

(4,793,272

)

FOREIGN EXCHANGE EFFECT ON CASH

25,561

78,181

64,330

67,250

INCREASE IN CASH AND CASH EQUIVALENTS

80,328,389

2,126,776

101,896,721

260,885

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

51,295,830

16,824,648

29,727,498

18,690,539

CASH AND CASH EQUIVALENTS, END OF PERIOD

131,624,219

18,951,424

131,624,219

18,951,424

SUPPLEMENTAL CASH FLOW INFORMATION (NOTE 12)

See accompanying notes to the Interim Condensed Consolidated Financial Statements.

- 4 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

1.	NATURE OF OPERATIONS

Absolute Software Corporation (the “Company”) was incorporated under the predecessor statue of the British Columbia Business Corporation Acton November 24, 1993. The Company’s principal business activity is the development, marketing, and provision of a cloud-based service that supports the management and security of computing devices, applications, and data for a variety of organizations globally. The Company’s differentiated technology is rooted in its patented Persistence^® technology, which is embedded in the firmware of laptop, desktop, and tablet devices by almost every major global computer manufacturer. Enabling a permanent digital tether between the endpoint and the organization that distributed it, the Company provides IT and security personnel with connectivity, visibility, and control, whether a device is on or off the corporate network, and empower them with Self-Healing Endpoint^™ security to ensure mission critical applications remain healthy and deliver intended value. The Company markets its solutions through PC OEMs, distributors, value added resellers, and directly to its customers, who include corporations, government entities, educational institutions, and consumers. While the majority of the Company’s sales are generated in North America, the Company’s products are also available internationally through resellers in Europe, the Middle East and Africa, as well as the Asia-Pacific and Latin American regions. The Company’s head office and principal address is Suite 1400, Four Bentall Centre, 1055 Dunsmuir Street, PO Box 49211, Vancouver, British Columbia, Canada, V7X 1K8. The Company trades on the TSX and the Nasdaq under the symbol “ABST”.

2.	SIGNIFICANT ACCOUNTING POLICIES

(a)

Basis of presentation

These unaudited interim condensed consolidated financial statements are prepared in accordance with International Accounting Standard (“IAS”) 34, Interim Financial Reporting, as issued by the International Accounting Standards Board (“IASB”). These unaudited interim condensed consolidated financial statements are prepared on a basis consistent with the accounting policies disclosed in the audited consolidated financial statements for the fiscal year ended June 30, 2020.

These unaudited interim condensed consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries; however, they do not include all disclosures normally provided in annual consolidated financial statements and should be read in conjunction with the annual consolidated financial statements as at and for the year ended June 30, 2020. Interim results are not necessarily indicative of the results expected for the fiscal year.

- 5 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

(b)

Significant accounting judgments

The critical judgments that the Company’s management has made in the process of applying the Company’s accounting policies, apart from those involving estimations (Note 2(c)), that has the most significant effect on the amounts recognized in the Company’s consolidated financial statements, are related to:

the determination of the functional currency for the Company and its subsidiaries;

ii)

the determination of the ranges of the Standalone Selling Prices of its subscription revenues; and

iii)

the determination of the Standalone Selling Price of its professional services revenues.

(c)

Key sources of estimation uncertainty

The preparation of these interim consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual outcomes could differ from these estimates. The interim consolidated financial statements include estimates which, by their nature, are uncertain.

The impacts of such estimates are pervasive throughout the interim consolidated financial statements, and may require accounting adjustments based on future occurrences. Revisions to accounting estimates are recognized in the period in which the estimate is revised and the revision affects both current and future periods.

Significant assumptions about the future and other sources of estimation uncertainty that management has made at the date of the statement of financial position, that could result in a material adjustment to the carrying amounts of assets and liabilities, in the event that actual results differ from assumptions made, include, but are not limited to, the following:

•

the assessment of the carrying values of allowances for unrecoverable accounts receivable and assets;

•

the assessment of the Company’s incremental borrowing rate related to the recognition of lease liabilities;

•

the assessment of renewal and termination options related to the recognition of right of use assets and lease liabilities;

•

the inputs used in accounting for share-based compensation in the statement of operations and comprehensive income;

•

the recognition and recoverability of the Company’s deferred tax assets; and

•

the evolving and future impacts of the global COVID-19 pandemic.

- 6 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

2.	SIGNIFICANT ACCOUNTING POLICIES (Continued)

(d)

Adoption of Future Accounting Standards

Certain pronouncements have been issued by the IASB that are issued but not yet effective. There are currently no such pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements upon adoption.

3.	SHORT-TERM INVESTMENTS

The Company’s short-term investments are comprised of the following:


	December 31, 2020		June 30, 2020
Investment grade securities	$	—	$	16,990,320
Term deposits		359,832		359,832

	$	359,832	$	17,350,152

4.	TRADE AND OTHER RECEIVABLES

The Company’s trade and other receivables are comprised of the following:


	December 31, 2020			June 30, 2020
Trade receivables	$	21,443,617		$	28,882,013
Other receivables		1,159,127			423,318
Allowance for doubtful accounts		(315,096	)		(315,096	)

	$	22,287,648		$	28,990,235

At December 31, 2020, 2% of the Company’s accounts receivable balance is over 90 days past due (June 30, 2020 – 1%). As at December 31, 2020, 45%, 28%, and 8% (June 30, 2020 – 55%, 16%, and 16%) of the receivable balances are owing from three OEM and distributor partners.

- 7 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

5.	CONTRACT ACQUISITION ASSETS

The following table provides a reconciliation of contract acquisition assets for the six months ended December 31, 2020 and the year ended June 30, 2020:


	December 31, 2020			June 30, 2020
Balance, beginning of period	$	13,344,184		$	11,905,831
Contract acquisition costs incurred		6,425,857			10,032,390
Amortization		(5,172,455	)		(8,594,037	)

Balance, end of period		14,597,586			13,344,184
Less: current portion		(8,323,010	)		(7,501,339	)

	$	6,274,576		$	5,842,845

6.	RIGHT OF USE ASSETS

The following table provides a reconciliation of right of use assets for the six months ended December 31, 2020 and the year ended June 30, 2020:


	December 31, 2020			June 30, 2020
Balance, beginning of period	$	9,181,927		$	8,917,373
Additions		3,274,535			2,194,817
Amortization		(1,096,502	)		(1,930,263	)

Balance, end of period	$	11,359,960		$	9,181,927

7.	TRADE AND OTHER PAYABLES

The Company’s trade and other payables are comprised of the following:


	December 31, 2020		June 30, 2020
Payroll and employee benefits	$	7,990,341	$	9,669,919
Trade payables		3,865,155		4,173,555
Deferred share units		3,821,711		3,684,643
Customer deposits		4,157,053		1,686,813
Accrued liabilities		1,630,854		527,374
Accrued warranty		18,000		133,000
Sales taxes payable		253,220		253,949

	$	21,736,334	$	20,129,253

- 8 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

8.	LEASE LIABILITIES

The following table provides a reconciliation of lease liabilities for the six months ended December 31, 2020 and the year ended June 30, 2020:


	December 31, 2020			June 30, 2020
Balance, beginning of period	$	10,135,831		$	9,699,651
Addition		3,274,535			2,465,218
Principal payments on lease liabilities		(1,207,653	)		(2,351,819	)
Interest payments on lease liabilities		281,334			619,398
Unrealized foreign exchange loss on lease liabilities		481,683			(296,617	)

Balance, end of period	$	12,965,730		$	10,135,831
Less: current portion		(2,532,627	)		(1,724,730	)

	$	10,433,103		$	8,411,101

9.	SHARE CAPITAL

(a)

Authorized

100,000,000 common shares, no par value

(b)

Issued and outstanding

On October 30, 2020, the Company completed an underwritten public offering in the United States of America and Canada of 6,272,727 common shares at a price of $11.00 per common share, for aggregate gross proceeds of $68,999,997. Costs of the underwriting fees and expenses were $5,120,793.

During the six months ended December 31, 2020, the Company issued 75,244 common shares on exercise of employee stock options for total proceeds of $451,248. An amount of $106,708 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.

During the six months ended December 31, 2020, the Company issued 30,508 common shares pursuant to its Employee Share Ownership Plan (the “ESOP”) for total proceeds of $165,662.

During the six months ended December 31, 2020, the Company issued 263,725 common shares pursuant to its Performance and Restricted Share Unit (“PRSU”) Plan with a fair value of $1,483,080.

During the six months ended December 31, 2019, the Company issued 135,862 common shares on exercise of employee stock options for total proceeds of $750,892. An amount of $161,710 related to the original fair value of the options was transferred from equity reserve to common shares upon exercise.

- 9 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

During the six months ended December 31, 2019, the Company issued 35,963 common shares pursuant to its prior employee share ownership plan (the “Prior ESOP”) for total proceeds of $180,842.

During the six months ended December 31, 2019, the Company issued 483,927 common shares pursuant to its PRSU Plan with a fair value of $2,493,580.

(c)

Stock Option Plan

The Company’s share-based compensation plans include an Employee Stock Option Plan (“Option Plan”).

In 2001, the Company’s Board of Directors adopted the Option Plan (as amended in 2007, 2009, 2015 and 2018). Under the Option Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Company’s other stock-based compensation plans (note 9(f)). On this basis, at December 31, 2020, the maximum number of common shares available under the Option Plan was 2,656,697 (June 30, 2020 – 2,324,924), of which 1,942,570 remained available for grant thereunder.

Terms and conditions of options granted under the Option Plan are determined solely by the Board of Directors, in accordance with the Option Plan. Under the Option Plan, the exercise price of each option equals the last closing market price of the Company’s common shares before the grant date. The term of option grants may not exceed 7 years from the date of grant of the option. Options are generally granted with a four year vesting period (25% vesting on each anniversary date).

The following table summarizes activity under the Option Plan for the six months ended December 31, 2020 and 2019:


	Six months ended December 31,
	2020					2019
	Number of options			Weighted average exercise price (CAD)		Number of options			Weighted average exercise price (CAD)
Outstanding, beginning of period		791,171		$	7.87		1,151,213		$	7.82
Exercised		(75,244	)		7.98		(133,612	)		7.38
Forfeited		(1,800	)		7.46		(56,974	)		7.50
Expired		—			—		(6,250	)		7.10

Outstanding, end of period		714,127		$	7.86		954,377		$	7.91

- 10 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

(d)

Performance and Restricted Share Unit Plan

The Company’s share-based compensation plans also include a PRSU Plan. Under the PRSU Plan, the Company may issue Performance Share Units (“PSU”s) and Restricted Share Units (“RSU”s).

In 2016, the Company’s shareholders ratified the PRSU Plan (as amended in 2018). Under the PRSU Plan, the maximum number of common shares reserved for issuance is limited to 12% of the number of common shares outstanding, less the amount that are issuable under the Company’s other stock-based compensation plans (note 9(f)), and the Phantom Share Unit Plan. On this basis, at December 31, 2020, 2,766,113 (June 30, 2020 – 3,963,088) common shares were eligible for grant under the PRSU Plan, of which 1,942,570 remained available for grant thereunder.

In addition, the Company has a Market-based PRSU Plan (“Market PRSU Plan”). Shares issued pursuant to the Market PRSU Plan will be acquired, at the Company’s election, under the terms of permissible share buyback mechanisms and will not be issued from treasury.

Terms and conditions of PSUs and RSUs granted are determined by the Board of Directors in accordance with the PRSU Plan.

Performance Share Units

Under the PRSU Plan, PSUs are issued to eligible persons and typically vest after a three year period (100% cliff vesting on the third anniversary date). The number of PSUs that ultimately vest is based on an Adjustment Factor, as determined by the Board of Directors at the date of grant, and can range from 0% to 200% of the number of units initially granted. The expiry date of the PSU grants is generally December 31 of the tenth year from the date of grant.

The following table summarizes PSU activity under the PRSU Plan for the six months ended December 31, 2020 and 2019:


	Six months ended December 31,
	2020			2019
	Number of units			Number of units
Outstanding, beginning of period		617,373			312,404
Granted		220,531			407,955
Exercised		—			(18,910	)
Forfeited		(14,361	)		(115,289	)

Outstanding, end of period		823,543			586,160

None of the outstanding PSUs at December 31, 2020 were issued pursuant to the Market PRSU Plan.

- 11 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

Fair values – Performance Share Units

The total fair value of PSUs granted under the PRSU Plan in the six months ended December 31, 2020 was $2,591,755 (2019 - $3,183,955). The weighted average grant date fair value of PSUs granted during the six months ended December 31, 2020 was $12.14 (2019 - $7.93). At December 31, 2020, 17,571 of the outstanding PSUs had vested.

The adjustment factor will be performance. The fair value of the PSUs granted was estimated on the grant date using a Monte Carlo simulation model, taking into account the fair value of the Company’s common shares on the date of grant, potential future dividends accruing to the PSU holder’s benefit, and encompassing a wide range of possible future market and Company performance conditions.

Restricted Share Units

Under the PRSU Plan, RSUs are issued to eligible persons and typically vest in tranches over a three year period (33.3% vesting on each anniversary date). The expiry date of the RSU grants is generally December 31 of the year in which the tranche vests.

The following table summarizes RSU activity under the PRSU Plan for the six months ended December 31, 2020 and 2019:


	Six months ended December 31,
	2020			2019
	Number of units			Number of units
Outstanding, beginning of period		1,811,963			1,282,298
Granted		601,944			830,702
Released		(263,725	)		(466,007	)
Forfeited		(48,591	)		(171,576	)

Outstanding, end of period		2,101,591			1,475,417

None of the outstanding RSUs at December 31, 2020 were issued pursuant to the Market PRSU Plan

Fair values – Restricted Share Units

The total fair value of RSUs granted under the PRSU Plan in the six months ended December 31, 2020 was $6,631,726 (2019 - $4,827,359). The weighted average grant date fair value of RSUs granted during the six months ended December 31, 2020 was $11.39 (2019 - $5.97) At December 31, 2020, 294,019 of the outstanding RSUs had vested.

- 12 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

The fair value of the RSUs granted was estimated on the grant date using the fair value of the Company’s common shares on the date of grant and potential future dividends accruing to the RSU holder’s benefit.

(e) Deferred Share Unit Plan

The Company’s share-based compensation plans also include a Deferred Share Unit (“DSU”) Plan. The DSU Plan is a cash-settled share based compensation plan.

In 2016, the Company’s shareholders ratified the DSU Plan. Terms and conditions of DSUs granted are determined by the Board of Directors.

Under the DSU Plan, DSUs are issued to eligible persons and generally vest over a one year period (25% per three months). DSUs are not eligible for redemption until the unitholder ceases to be an eligible person. The term of the DSU grants is coterminous with the date the unitholder ceases to be an eligible person.

The following table summarizes activity under the DSU Plan for the six months ended December 31, 2020 and 2019:


	Six months ended December 31,
	2020			2019
	Number of units			Number of units
Outstanding, beginning of period		377,612			340,862
Granted		3,905			13,600
Released		(60,365	)		(48,312	)

Outstanding, end of period		321,152			306,150

Fair values – Deferred Share Units

The total fair value of DSUs granted under the DSU Plan in the six months ended December 31, 2020 was $40,271 (2019 - $48,123). The weighted average grant date fair value of DSUs granted during the six months ended December 31, 2020 was $10.31 (2019 - $6.81). The fair value owing was marked to market at December 31, 2020, and as a result, at that date, the total liability carried within Accounts Payable and Accrued Liabilities related to the DSU Plan was $3,821,711 (June 30, 2020 - $3,684,643).

(f) Employee Share Ownership Plan and Prior ESOP

The Company’s share-based compensation plans also include the ESOP.

In 2020, the Company’s shareholders ratified the ESOP. Previous to December 31, 2019, the Company had the Prior ESOP, which was adopted in 2004.

- 13 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

The terms of the ESOP allow employees to purchase up to 350,000 common shares from treasury at a 15% discount from the market price. Each employee can allocate an annual maximum of CAD $15,000 per year to the purchase of common shares through two, six month offering periods per year. The ESOP became effective January 1, 2020, and on that date, the Prior ESOP lapsed.

During the six months ended December 31, 2020, 30,508 common shares (2019–35,963 common shares under the Prior ESOP) were issued from treasury under the ESOP at a weighted average price of $5.43 (2019—$5.03) per share. In addition, on January 28, 2021, 37,581 common shares were issued for the six month offering period ended December 31, 2020.

As a result, at December 31, 2020, 319,492 common shares were available for grant under the ESOP.

(g) Dividends

In the six months ended December 31, 2020, the Company declared two quarterly dividends of CAD$0.08 per share on its common shares, amounting to $5,592,226. The dividends were paid in cash to shareholders of record at the close of business on August 12, 2020 and November 13, 2020, respectively.

In the six months ended December 31, 2019, the Company declared two quarterly dividends of CAD$0.08 per share on its common shares, amounting to $5,021,806. The dividends were paid in cash to shareholders on August 29, 2019 and November 29, 2019.

(h) Share-based compensation

The Company’s share-based compensation for the three and six months ended December 31, 2020 and 2019 was comprised as follows:


	Three months ended December 31,				Six months ended December 31,
	2020		2019		2020		2019
Restricted share units	$	1,635,959	$	791,099	$	3,252,702	$	1,556,044
Performance share units		418,889		174,348		817,444		365,138
Stock option plan		30,648		20,275		63,184		83,714
Employee share purchase plan		47,018		13,891		59,744		27,330
Deferred share unit plan		421,262		70,772		953,707		204,960

	$	2,553,776	$	1,070,385	$	5,146,781	$	2,237,186

- 14 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

9.	SHARE CAPITAL (Continued)

The Company’s share-based compensation was attributable to the following areas for the three and six months ended December 31, 2020 and 2019:


	Three months ended December 31,				Six months ended December 31,
	2020		2019		2020		2019
Cost of revenue	$	363,252	$	80,403	$	647,733	$	145,739
Sales and marketing		801,212		599,380		1,640,578		946,628
Research and development		384,130		242,297		770,489		501,544
General and administration		1,005,182		148,305		2,087,981		643,275

	$	2,553,776	$	1,070,385	$	5,146,781	$	2,237,186

(i) Treasury shares

During 2017, the Company acquired 104,567 treasury shares for a total cost of $499,443. The treasury shares are presented as a component of shareholder’s deficiency. The treasury shares were purchased pursuant to a TSX Normal Course Issuer Bid order to fund the Company’s Market PRSU Plan (note 9(d)). At December 31, 2020, the Company held 60,942 treasury shares with a cost of $263,840 (2019 - $263,840).

10.

REVENUE

(a) Disaggregated revenue

The table below provides a disaggregation of our overall revenues for the three and six months ended December 31, 2020 and 2019:


	Three months ended December 31,				Six months ended December 31,
	2020		2019		2020		2019
Cloud services	$	27,667,839	$	23,845,687	$	54,047,416	$	47,447,901
Managed services		1,255,801		1,013,759		2,466,529		2,014,479

		28,923,640		24,859,446		56,513,945		49,462,380
Professional services		48,616		47,938		90,826		212,526
Other		884,999		890,230		1,748,041		1,775,197

	$	29,857,255	$	25,797,614	$	58,352,812	$	51,450,103

- 15 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

10.

REVENUE (Continued)

(b) Deferred revenue

The following table provides a reconciliation of deferred revenue balances to invoiced billings, revenue, and other adjustments for the six months ended December 31, 2020 and 2019, and comparative balance sheet information for the year ended June 30, 2020:


	December 31, 2020			June 30, 2020
Balance, beginning of period	$	142,603,424		$	134,427,961
Billings		69,838,228			112,846,232
Revenue recognized		(58,352,812	)		(104,670,769	)
Balance, end of period		154,088,840			142,603,424
Less: current portion		(86,028,052	)		(80,843,795	)

	$	68,060,788		$	61,759,629

In the six months ended December 31, 2020, revenue recognized included $48,790,136 (2019 – $45,325,533) that was included in deferred revenue at the beginning of the period.

The Company’s deferred revenue is scheduled to be recognized in the years ended June 30, as follows:


2021	$	52,291,413
2022		55,771,824
2023		31,064,820
2024		11,690,940
2025		3,269,843

	$	154,088,840

11.

INCOME TAXES

The Company operates in various tax jurisdictions, and accordingly, the Company’s income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. The Company’s ability to use income tax losses and deferred income tax deductions is dependent upon the profitable operations of the Company in the tax jurisdictions in which such losses or deductions arise. The Company’s interim tax provisions are estimated based on the expected effective tax rates applicable to the Company’s operations for the year ended June 30, 2020.

- 16 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

11. INCOME TAXES (Continued)

The Company’s income tax expense was comprised as follows:


	Three months ended December 31,						Six months ended December 31,
	2020			2019			2020			2019
Current income tax recovery (expense)	$	(1,537,000	)	$	35,000		$	(2,666,000	)	$	(439,000	)
Deferred income tax (expense) recovery		801,000			(1,172,000	)		636,000			(1,884,000	)

	$	(736,000	)	$	(1,137,000	)	$	(2,030,000	)	$	(2,323,000	)

Income tax expense for the three and six months ended December 31, 2020 and 2019 differs from that calculated by applying statutory rates for the following reasons:


	Three months ended December 31,						Six months ended December 31,
	2020			2019			2020			2019
Income before income taxes	$	2,638,620		$	3,847,334		$	6,534,563		$	8,484,548
Combined Federal and Provincial income tax rate		27.00	%		27.00	%		27.00	%		27.00	%

Expected tax expense at statutory rate		(712,427	)		(1,038,780	)		(1,764,332	)		(2,290,828	)
Permanent differences		(79,952	)		(79,636	)		(361,348	)		(184,000	)
Foreign income tax effected at lower rates		10,972			26,182			15,043			49,200
Impact on deferred income tax assets of changes in foreign exchange rates		45,000			65,000			79,000			35,000
Income applied to previously unrecognized tax assets		407			649			1,637			1,305
Amounts (under) over provided for in prior years		—			(110,415	)		—			66,323

Total income tax expense	$	(736,000	)	$	(1,137,000	)	$	(2,030,000	)	$	(2,323,000	)

At December 31, 2020, the Company had total net deferred tax assets of $22,357,305 (June 30, 2020—$22,278,745), primarily related to deferred revenue balances, current income tax receivable of $545,291 (June 30, 2020 – $111,769), primarily related to tax instalments paid, and current taxes payable of $22,777 (June 30, 2020—$382,041) in other foreign jurisdictions. In the three and six months ended December 31, 2020 and 2019, the Company’s current tax payable is partially offset by estimated investment tax credit (“ITC”) receivable balances. The ITCs were credited against research and development expenses, as the credit is generated by certain eligible scientific research and development expenditures (“SRED”).

The ultimate realization of deferred tax assets is dependent upon the generation of future taxable income during the periods in which those temporary differences become deductible and during the loss carry-forward periods. Management considers the scheduled reversal of deferred tax assets and liabilities, projected future taxable income, and tax planning strategies in making this

- 17 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

11.

INCOME TAXES (Continued)

assessment. The amount of the deferred tax asset considered realizable could change materially in the near term based on future taxable income during the carry-forward period.

The Company’s operations are conducted in a number of countries with complex tax legislation and regulations pertaining to the Company’s activities. Any reassessment of the Company’s tax filings by the tax authorities may result in material adjustments to net income or loss, deferred tax assets and operating loss carry-forwards.

12.

SUPPLEMENTAL CASH FLOW INFORMATION

Composition of cash and cash equivalents


	December 31, 2020		June 30, 2020
Cash	$	117,717,715	$	24,672,338
Cash equivalents		13,906,504		5,055,160

	$	131,624,219	$	29,727,498

Other cash flow information


	Three months ended December 31,						Six months ended December 31,
	2020			2019			2020		2019
Cash paid (received) for income taxes	$	972,817		$	(170,887	)	$	1,541,455	$	(27,456	)
Cash paid for interest	$	—		$	126,727		$	—	$	257,928
Non-cash investing and financing activities
Accrued purchases of property and equipment, net	$	(8,585	)	$	(395,430	)	$	543,737	$	1,626,782

- 18 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

13.

FINANCIAL INSTRUMENTS

The fair value and notional amount of derivative financial instruments outstanding are comprised of the following:


	December 31, 2020		June 30, 2020
Cash	$	117,717,715	$	24,672,338
Cash equivalents		13,906,504		5,055,160

	$	131,624,219	$	29,727,498


	Derivative Assets
	December 31, 2020		June 30, 2020
Fair value of derivatives designated as cash flow hedges	$	590,038	$	—
Notional amount	$	14,700,000	$	—

During the six months ended December 31, 2020, $119,955 (December 31, 2019 - $nil) in hedging gains have been recognized in operating expenses. The fair values of derivative assets are measured using Level 2 fair value inputs. Derivative assets are included in trade and other receivables.

(a) Foreign exchange

The Company enters into foreign exchange forward contracts to minimize its exposure to foreign exchange rate risks. These contracts have been designated as cash flow hedges. The maturity dates of these instruments range from January 2021 to August 2021. As at December 31, 2020, the net unrealized gain on these forward contracts was $590,038 (June 30, 2020 – $nil). Unrealized gains were recorded in trade and other receivables and other comprehensive income (“OCI”). As at December 31, 2020, the Company estimates that 100% of net unrealized gains/losses on these forward contracts will be reclassified into income (loss) within the next twelve months.

For the three and six months ended December 31, 2020, a gain of $559,811 and $590,038 respectively relating to the effective portion was recognized in OCI and there was $nil reclassified from OCI into income relating to the ineffective portion.

(b) Credit risk

The Company is exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations. The Company mitigates this risk by limiting counterparties to highly rated financial institutions and by continuously monitoring their creditworthiness. The Company’s exposure to credit loss and market risk will vary over time as a function of currency exchange rates. The Company measures its counterparty credit exposure as a percentage of the total fair value of the applicable derivative instruments. Where the net fair value of derivative instruments with any counterparty is negative, the Company deems the credit exposure to that counterparty to be $nil. As at December 31, 2020, the Company had a credit risk exposure to counterparties with outstanding or unsettled foreign

- 19 -

ABSOLUTE SOFTWARE CORPORATION

Notes to the Condensed Consolidated Financial Statements

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)

13.

FINANCIAL INSTRUMENTS (Continued)

exchange derivative instruments of $590,038 on a notional amount of $14,700,000 relating to derivative assets (June 30, 2020 – $nil).

14.

SEGMENTED INFORMATION

Entity wide disclosures

Geographic revenue information is based on the location of the customer invoiced. Long-lived assets include non-current contract acquisition assets, property and equipment, right of use assets and goodwill.


	Three months ended December 31,				Six months ended December 31,
	2020		2019		2020		2019
Revenue
United States	$	24,907,538	$	22,133,019	$	49,011,856	$	44,189,377
Rest of world		4,457,680		3,149,518		8,290,675		6,238,301
Canada		492,037		515,077		1,050,281		1,022,425

	$	29,857,255	$	25,797,614	$	58,352,812	$	51,450,103


	December 31, 2020		June 30, 2020
Long-lived assets
Canada	$	10,838,605	$	12,201,188
United States and rest of world		12,331,267		9,486,911

	$	23,169,872	$	21,688,099

15.

SUBSEQUENT EVENTS

(a) Employee Share Purchase Plan

On January 29, 2021, 37,581 common shares were issued pursuant to the Employee Share Purchase Plan.

(b) Quarterly dividend

On January 20, 2021, the Company declared a quarterly dividend of CAD$0.08 per share on its common shares, payable in cash on February 26, 2021 to shareholders of record at the close of business on February 12, 2021.

- 20 -

Exhibit 99.2

ABSOLUTE SOFTWARE CORPORATION (TSX: ABST; Nasdaq: ABST)

Second Quarter Fiscal 2021 Management’s Discussion and Analysis

For the three and six months ended December 31, 2020

Dated: February 9, 2021

Introduction

The following Management’s Discussion and Analysis (this “MD&A”) has been prepared in accordance with Form 51-102F1 and should be read in conjunction with the Company’s Second Quarter Fiscal 2021 (“F2021”) Interim Condensed Consolidated Financial Statements and accompanying notes. These documents, along with additional information about Absolute, including the Annual Information Form (the “AIF”) for the year ended June 30, 2020 (“F2020”), are available at www.absolute.com, under Absolute’s SEDAR profile at www.sedar.com, and on EDGAR at www.sec.gov.

The words “we”, “our”, “us”, “Company” and “Absolute” refer to Absolute Software Corporation together with its subsidiaries and/or the management and employees of the Company (as the context may require).

The Company’s fiscal year ends on June 30 of each year. All dollar figures are stated in U.S. dollars unless otherwise indicated.

Forward-Looking Statements

This MD&A contains certain forward-looking statements and forward-looking information, as defined under applicable securities laws, including, without limitation, the U.S. Private Securities Litigation Reform Act of 1995 (collectively, “forward-looking statements”), which relate to future events or Absolute’s future business, operations, and financial performance and condition. Forward-looking statements normally contain words like “will”, “intend”, “anticipate”, “could”, “should”, “may”, “might”, “expect”, “estimate”, “forecast”, “plan”, “potential”, “project”, “assume”, “contemplate”, “believe”, “shall”, “scheduled”, and similar terms and, within this MD&A, include, without limitation, any statements (express or implied) respecting: Absolute’s future plans, strategies, and objectives, including plans, strategies, and objectives arising out of the COVID-19 pandemic; the impacts of the COVID-19 pandemic on Absolute’s business, operations, prospects, and financial results, including, without limitation, greater/continued remote working and/or distance learning and the effects of governmental lockdowns, restrictions, and new regulations on our operations and processes, business, and financial results; projected revenues, cash flows, expenses, margins, and profitability; future trends, opportunities, challenges, and growth in Absolute’s industry, including as a result of the COVID-19 pandemic; Absolute’s ability to grow revenue by selling to new customers and increase subscriptions with existing customers; Absolute’s ability to renew customers’ subscriptions; Absolute’s ability to maintain and enhance its competitive advantages within its industry and in certain markets; Absolute’s ability to remain compatible with existing and new PC and other device operating systems; the maintenance and development of Absolute’s PC OEM and other partner networks; existing and new product functionality and suitability; Absolute’s product and research and development strategies and plans; Absolute’s privacy and data security controls; the seasonality of future revenues and expenses; the future availability of working capital and any required additional financing; the use of the proceeds from the October 2020 public equity offering; future dividend issuances or increases; future fluctuations in applicable tax rates, foreign exchange rates, and/or interest rates; the future availability of tax credits; the addition and retention of key personnel; increases to brand awareness and market penetration; future corporate, asset, or technology acquisitions; strategies respecting intellectual property protection and licensing; potential future litigation or product liability; Absolute’s foreign operations; expenses, regulatory obligations, and/or legal exposures as a result of its SEC registration and Nasdaq listing; changes and planned changes to accounting policies and standards and their respective impact on our financial reporting; economic and market uncertainty; and the continued effectiveness of our accounting policies and internal controls over financial reporting. Forward-looking statements are provided for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations, and operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

rates, and interest rates will not have a material impact on Absolute; certain tax credits will remain or become available to Absolute; Absolute will be able to attract and retain key personnel; Absolute will be successful in its brand awareness and other marketing initiatives; Absolute will be able to successfully integrate businesses, intellectual property, products, personnel, and/or technologies that it may acquire (if any); Absolute will be able to maintain and enhance its intellectual property portfolio; Absolute’s protection of its intellectual property is and will be sufficient and its technology does not and will not materially infringe third party intellectual property rights; Absolute will be able to obtain any necessary third party licenses on favourable terms; Absolute will be able to successfully manage the additional expenses, regulatory obligations, and legal exposures resulting from its SEC registration and Nasdaq listing; Absolute will not become involved in material litigation; Absolute will not face any material unexpected costs related to product liability or warranties; foreign jurisdictions will not impose unexpected risks; economic and market conditions (including, without limitation, as affected by the COVID-19 pandemic) will not impose unexpected risks or challenges; and Absolute will maintain or enhance its accounting policies and standards and internal controls over financial reporting.

Although management believes that the forward-looking statements herein are reasonable, actual results could be substantially different due to the risks and uncertainties associated with and inherent to Absolute’s business, including the following risks (as more particularly described in the “Risk and Uncertainties” section of this MD&A): risks related to the COVID-19 pandemic and its impact on Absolute; that Absolute may not be able to accurately predict its rate of growth and profitability; that Absolute’s estimates of market opportunity and market and revenue growth may be inaccurate or Absolute may fail to grow at its estimated rates; that Absolute may need or elect to use the proceeds of the October 2020 public equity offering other than as currently intended and disclosed; Absolute’s dependence for sales on PC OEM partners and other distribution channels; that Absolute is heavily dependent on its ability to maintain its embedded firmware with its current PC OEM partners; risks related to economic and political uncertainty; that Absolute may be unable to attract new customers or its existing customers may not renew or expand their existing commercial relationship with Absolute; that Absolute may be unable to adapt its technology to be compatible with new operating systems; that changing buying patterns in the education vertical may adversely impact Absolute’s business; that changing contracting or fiscal policies of government organization may adversely affect Absolute’s business and operations; risks relating to the evolving nature of the market for Absolute’s products; that Absolute’s software services may contain errors, vulnerabilities or defects; that Absolute could suffer security breaches impacting the third-party data that Absolute stores and the other risks associated with data security and hacking; that Absolute’s reputation may be damaged, and its financial results negatively affected, if its internal networks, systems or data are perceived to have been compromised; that customers may expose Absolute to potential violations of applicable privacy laws if the customer does not comply with such laws; that continued sales growth may cause operating challenges for Absolute; that Absolute’s focus on larger enterprise customers could result in greater costs, less favourable commercial terms, and other adverse impacts to Absolute; risks associated with any failure by Absolute to successfully promote and protect its brands; that Absolute’s business may be impacted by business cycles; risks associated with the competition Absolute faces within its industry; that Absolute’s research and development efforts may not be successful; risks resulting from interruptions or delays from third-party hosting facilities; that Absolute’s business may suffer if it cannot continue to protect its intellectual property rights; that Absolute may be unable to obtain patent or other proprietary or statutory protection for new or improved technologies or products; risks related to Absolute’s technology incorporating “open source” software; that Absolute may be unable to maintain technology licenses from third-parties; risks related to fluctuating foreign exchange rates; that the price of Absolute’s common shares may be subject to wide fluctuations; risks related to Absolute’s SEC registration and Nasdaq listing; that Absolute is reliant on its key personnel; that Absolute may be subject to litigation or dispute resolution from time-to-time; risks related to Absolute’s foreign operations; that Absolute may be unable to successfully manage and integrate acquisitions (or may be unable to successfully complete dispositions) of companies, businesses, products or technologies; risks related to Absolute’s amortization of revenue over the term of its customer subscriptions; risks related to Absolute’s reliance on its reseller and other partners for billings; income tax related risks; Absolute may become subject to product liability claims; and risks related to Absolute’s reliance on copyrights, trademarks, trade secrets, and confidentiality procedures and similar contractual provisions. Additional material risks and uncertainties applicable to the forward-looking statements herein include, without limitation, unforeseen events, developments, or factors causing any of the aforesaid expectations, assumptions, and other factors ultimately being inaccurate or irrelevant. Many of these factors are beyond the control of Absolute.

All forward-looking statements included in this MD&A are expressly qualified in their entirety by these cautionary statements. The forward-looking statements contained in this MD&A are made as at the date hereof and Absolute undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws.

Industry and Market Data

Information contained in this MD&A concerning the industry and the markets in which Absolute operates, including Absolute’s perceived trends, market position, market opportunity, market share, and competitive advantages within the markets in which it operates, is based on information from independent industry analysts and third party sources (including industry publications, surveys, and forecasts), Absolute’s internal research, and management estimates. Management estimates are derived from publicly available information released by independent industry analysts and other third party sources, as well as data from Absolute’s internal research, and are based on assumptions made by Absolute based on such data and its knowledge of its industry and markets, which management believes to be reasonable. Certain of the sources utilized in this MD&A have not consented to the inclusion of any data from their reports, nor has Absolute sought their consent. Absolute’s internal research has not been verified by any independent source and Absolute has not independently verified any third-party information. While Absolute believes the market opportunity and market share information included in this MD&A is generally reliable, such information is inherently imprecise and may be rendered inaccurate by a variety of factors, including recent events and emerging economic trends. In addition, projections, assumptions, and estimates of Absolute’s future performance and the future performance of the industry and the markets in which Absolute operates constitute forward-looking statements which are subject to a high degree of uncertainty and risk due to a variety of factors, including those referred to under the heading “Forward-Looking Statements” above and in the “Risks and Uncertainties” and other sections of this MD&A. As of the date of this MD&A, the full and long-term impacts of the COVID-19 pandemic continue to unfold. It is not possible for Absolute to reliably estimate the length and severity of these impacts and, as a result, many of our estimates and assumptions contained herein required increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. Readers should carefully review these estimates and assumptions, along with the risk factors contained in “Risks and Uncertainties”, in light of evolving economic, political, and social conditions.

Trademarks

ABSOLUTE, ABSOLUTE SOFTWARE, the ABSOLUTE logo, PERSISTENCE, APPLICATION PERSISTENCE, ABSOLUTE RESILIENCE, ENDPOINT RESILIENCE, ABSOLUTE REACH, SELF-HEALING ENDPOINT, and DARK ENDPOINT are trademarks of Absolute in Canada, the United States, and/or other jurisdictions. Other product names or logos mentioned herein may be the trademarks of Absolute or their respective owners. The absence of the symbols ^™ and ^® in proximity to each trademark, or at all, herein is not a disclaimer of ownership of the related trademark.

Selected Quarterly Information


USD Millions, except per share data	Q2									YTD
USD Millions, except per share data	F2021			F2020			Change			F2021			F2020			Change
Total annual recurring revenue (“ARR”)	$	117.5		$	100.3			17	%
Revenue
Recurring revenue⁽¹⁾	$	29.0		$	24.9			16	%	$	56.6		$	49.5			14	%
Other	$	0.9		$	0.9			(0	%)	$	1.8		$	1.9			(7	%)
Total	$	*29.9*		$	25.8			16	%	$	*58.4*		$	51.4			13	%
Net income	$	1.9		$	2.7			(30	)%	$	4.5		$	6.2			(27	%)
Per share (basic)	$	0.04		$	0.06					$	0.10		$	0.15
Per share (diluted)	$	0.04		$	0.06					$	0.09		$	0.14
As a percentage of revenue		6	%		11	%					8	%		12	%
Adjusted EBITDA⁽²⁾	$	8.0		$	6.2			30	%	$	16.2		$	13.2			23	%
As a percentage of revenue		27	%		24	%					28	%		26	%
Cash from operating activities	$	13.4		$	2.2			517	%	$	28.1		$	9.6			191	%
Dividends paid	$	3.0		$	2.5			20	%	$	5.6		$	5.0			11	%
Per share (CAD)	$	*0.08*		$	0.08					$	*0.16*		$	0.16
Cash, cash equivalents, and short-term investments	$	132.0		$	38.6			242	%
Total assets	$	213.9		$	105.1			104	%
Deferred revenue	$	154.1		$	128.8			20	%
Common shares outstanding		49.2			42.3			16	%

Notes:

(1)

Recurring revenue represents revenue derived from cloud services (as defined below) and managed services, both of which are included as part of Total ARR (as defined below). Other revenue represents revenue derived from non-recurring professional services and ancillary product lines, including consumer products.

(2)	Throughout this document, Adjusted EBITDA (as defined below) is used as a profitability measure. Please refer to the “Non-IFRS Measures and Key Metrics” section of this MD&A for further discussion on this and other non-IFRS measures.

Second Quarter Fiscal 2021 (“Q2 F2021”) Overview

Key Financial Metrics

•

Total revenue in Q2 F2021 was $29.9 million, representing an increase of 16% over Q2 F2020 revenue.

•

Net income in Q2 F2021 was $1.9 million, compared to $2.7 million in Q2 F2020.

•

Total ARR⁽¹⁾ at December 31, 2020 was $117.5 million, representing an increase of 17% over the prior year. The Enterprise & Government portions of Total ARR increased by 12% annually over Q2 F2020 and represented 66% of Total ARR at December 31, 2020; the Education sector portion of Total ARR increased by 30% annually over Q2 F2020 and represented 34% of Total ARR at December 31, 2020.

•

New Logo ARR⁽¹⁾⁽²⁾ was $1.5 million in Q2 F2021, compared to $1.3 million in Q2 F2020.

•

Net Dollar Retention⁽¹⁾⁽³⁾ from existing customers was 109% in Q2 F2021, compared with 100% in Q2 F2020.

•

Adjusted EBITDA in Q2 F2021 was $8.0 million, or 27% of revenue, up from $6.2 million, or 24% of revenue, in Q2 F2020.

•

Cash generated from operating activities in Q2 F2021 was $13.4 million, compared to $2.2 million in Q2F2020.

•

Absolute paid a quarterly dividend of CAD$0.08 per common share during Q2 F2021.

(1)	Refer to the “Non-IFRS Measures and Key Metrics” section of this MD&A for further discussion of this measure.

(2)	Beginning in Q2 F2021, we changed the nomenclature of Total ARR from sales to new customers during a period from “ARR from New Customers” to “New Logo ARR”. There has been no change in the methods by which these measures are calculated.

(3)

Beginning in Q2 F2021, we have changed the nomenclature of the percentage increase or decrease in Total ARR from existing customers for a given period from “Net ARR Retention” to “Net Dollar Retention” and changed the measurement period from quarterly to annual, as we believe the annual metric is more aligned with business performance measures and industry norms. The measure calculated under the previously used methodology for Q2 F2020 was 104%.

Q2 F2021 & Recent Business Highlights

Product and service highlights:

•

In October, we launched a new Absolute Control^® mobile app, designed to help customers secure endpoint devices and protect sensitive data while on the go. The user-friendly app extends the power of the Absolute console, enabling IT and security teams to easily locate lost or stolen devices, check the health of critical endpoint security agents, and take swift action to lock a device if it is determined to be at risk.

•

In November, we announced new software inventory capabilities and web usage analytics that provide IT and security teams with advanced insights into software and web usage across their distributed endpoint device fleets.

•

We continued adding to our Application Persistence portfolio of self-healing applications, including Netskope^® Cloud Access Security Broker (CASB), Next-Gen Secure Web Gateway (NG-SWG) and Palo Alto Networks^® GlobalProtect^™ security platform, enabling them to be monitored and autonomously self-heal so they remain installed, healthy, and undeletable.

Business and organizational developments:

•

In October, we completed a public offering of our common shares (“Common Shares”) in the United States and Canada for gross proceeds of approximately $69 million and a corresponding cross-listing of the Common Shares on the Nasdaq Global Market Exchange. Our Common Shares now trade on both the Toronto Stock Exchange and Nasdaq under the symbol “ABST.”

•

In October, Christy Wyatt, Absolute’s President and Chief Executive Officer was named ‘New CEO of the Year’ by The Globe and Mail’s Report on Business magazine, based on her significant impact on the Company and its strategy in less than three years of tenure in her role.

•

In November, Steven Gatoff joined Absolute as Chief Financial Officer. Mr. Gatoff brings to Absolute over 25 years of financial expertise and leadership, and a distinctive track record of driving value creation for software companies. His responsibility includes all global finance, accounting, financial reporting, audit, tax, investor relations, and capital planning functions at Absolute.

•

In November, we announced Sound Physicians, a physician-led operator of medical clinics across the U.S., relies on Absolute Resilience^™ to secure remote endpoints that routinely process and store sensitive patient data protected by the Health Insurance Portability and Accountability Act (HIPAA).

•

In December, we were awarded the Cyber Catalyst^SM designation by Marsh & McLennan – who facilitates an independent evaluation of over 90 solutions by leading cyber insurers. This designation is significant as it emphasizes Absolute’s critical capabilities and our ability to provide the highest level of protection against today’s top cyber risks—and offers customers significant discounts on cyber insurance when Absolute is deployed in their environments.

•

In December, we were notified by the FedRAMP Joint Authorization Board that we have been prioritized to pursue a Provisional Authority to Operate for the Absolute Resilience platform. This enhances our opportunity to accelerate our growth in the US federal market over the coming years – and demonstrates our commitment to ensuring the highest levels of cloud security across all government agencies.

•

In December, we were named a Leader in the Winter 2021 Grid^® Report for Endpoint Management published by G2, a leading business solutions review website. This marks the sixth consecutive quarter Absolute has been identified as one of the top Endpoint Management solution providers based on high levels of customer satisfaction among G2’s verified users.

Partner and other highlights:

•

Absolute was added to the HealthTrust Group Purchasing Organization offering that Lenovo and CDW sales teams are leveraging in healthcare sector.

•

Dell’s Blueprint for Success program, originally launched in Q1 with a focus on education, and has now been expanded to cover state and local governments and healthcare

•

Additional software bundles were launched with HP in North America and EMEA, supporting consumers as well as WFH, remote workers and BYOD users

•

We increased partner engagement in Q2 via our new Partner Program, which in turn led to increased activity in our channel pipeline

Company Overview

Absolute Software^™ delivers a cloud-based service that supports the management and security of computing devices, applications, and data for a variety of organizations globally. Our differentiated technology is rooted in our patented Persistence^® technology, which is embedded in the firmware of laptop, desktop, and tablet devices (collectively, “endpoint devices”) by almost every major global computer manufacturer (“PC OEMs”). Enabling a permanent digital tether between the endpoint and the organization that distributed it, we provide IT and security personnel with connectivity, visibility, and control, whether a device is on or off the corporate network, and empower them with Self-Healing Endpoint^™ security to ensure mission-critical applications remain healthy and deliver intended value. Our technology is embedded in over a half-billion devices and we currently serve 12,960 customers with over 11.5 million active endpoints globally.

We have offices in Vancouver, Canada; Austin, U.S.A.; San Jose, U.S.A.; Iowa, U.S.A.; Colorado, U.S.A.; Ho Chi Minh City, Vietnam; and Reading, England. We service territories in most regions of the world through our remote sales force and through our partner network. Our products and customer support services are currently available in 10 languages. We have distribution agreements with PC OEMs and a number of distributors, resellers, and other partners located in North America, Europe, Africa, the Asia-Pacific region, and Latin America.

Our company website is www.absolute.com.

Solutions and Technology

Our solutions are delivered in a software-as-a-service (“SaaS”) business model, where customers access our service through the cloud-based Absolute console. Our solutions are offered in specific versions for the (i) enterprise and government, and (ii) education verticals. All versions are available in three editions: Visibility, Control, and Resilience, each of which provides a different subset of product features and functionality. We also offer a “Home and Office” edition of our service which is targeted towards consumers and home office professionals.

Absolute Platform

Our cloud-based platform helps ensure the connectivity, visibility, and control of data and devices independent of the operating system, empowering devices to recover automatically to a secure operational state without user intervention. We believe our Endpoint Resilience^™ solutions are essential to support various other security controls and productivity tools from decay and vulnerabilities, and to help enable organizations to keep data, devices, and applications secure and their users productive.

Our platform also powers our Application Persistence^™ technology, which enables measurement of the health, compliance, and state of decay of endpoint security controls and productivity tools (e.g. encryption, client management, anti-malware, collaboration, and virtual private network (“VPN”)) and their ability to react to attack, collision, and damage. Our Application Persistence ecosystem now includes approximately 40 independent applications. We believe organizations need tools that monitor when applications are in decay, disabled, out of compliance, misconfigured, or breached and that then automatically self-heal (i.e. reinstall and repair as needed) these mission-critical applications. In addition, IT and security teams can leverage our Application Persistence technology to combine security control applications that work best together for maximum capabilities, performance, and return on investment on security investments.

Technology Deployment Model

The foundation of our Endpoint Resilience solutions is the “undeletable” tether built into device firmware. Our patented Persistence technology is embedded into the firmware of endpoint devices at the point of manufacture by most of the world’s largest PC OEMs. Once activated, this technology provides a reliable, highly tamper- resistant, and constant connection between the device and our cloud-based monitoring center, even when the device is off the corporate network and beyond the reach of traditional IT management and security tools. We believe that our ability to establish this root of trust is a key differentiator as it enables a high degree of resilience for our software agent, as well as for other critical third-party software agents that leverage the self-healing capabilities of our Persistence technology. If the software agent is removed or disabled, an automatic reinstallation will occur, even if the firmware is overwritten or flashed, the device is reimaged, the hard drive is replaced, or if the device is restored to its factory settings.

We also license our Application Persistence technology within our partner ecosystem via custom integrations. Under this model, partners, such as PC OEMs and ISVs, license our technology in order to improve the resilience of their own endpoint agents.

Market Opportunity

We believe that our market opportunity centers around two key themes: (1) the acceleration of attack vectors and data breaches that are impacting organizations of all types, sizes, industries, and geographies; and (2) the shift to remote work and distance learning and the growing information security challenges associated with managing and measuring the health and security of these programs. We believe that even prior to the outbreak of COVID-19, organizations around the world were becoming more distributed as they increased workforce mobility, grew their number of connected devices, and added more workloads to these devices.

We believe that there will be a structural shift to increased remote work and distance learning which, in turn, will expand and accelerate our market opportunity as organizations in various sectors increasingly focus on the need to establish and maintain an undeletable connection to their endpoints. We are positioned to deliver the Endpoint Resilience security solutions which we believe enterprise, government, and educational organizations will require. By establishing an unbreakable tether to every device, we can deliver services required to support other security controls and productivity tools from bad actors, decay, and vulnerabilities, which enables organizations to keep data, devices, and applications secure and users productive. In addition, our real-time intelligence amplifies our customers’ ability to understand the health, compliance, and state of decay of endpoint security controls and productivity tools.

Business and Growth Strategy

We believe that the recent shift to increased remote and hybrid work and distance learning will help fortify the demand for the security and management of computing devices, applications, and data. With a distributed workforce, we believe that organizations can no longer be solely reliant on network-based security – rather, they need to increase their focus on securing the actual endpoint devices. As a result, we see opportunity for further growth across North America and in other global regions in each of the enterprise, government, and education verticals. We are currently investing in personnel and partner initiatives in the EMEA region to help drive growth.

We plan to continue releasing new capabilities and product offerings leveraging our distinctive technology and rich data platform. Our focus will be in high growth areas such as our global strategic accounts, growth in developing regions for our sales such as Europe, and our channel and partner programs. Our growth

strategies and programs in the coming months may be tempered by the continued economic uncertainty resulting from the COVID-19 pandemic. See “Impacts of the COVID-19 Pandemic” in this MD&A.

Our business and growth strategy is organized around four fundamental pillars:

•

Persistence – Our solution is an undeletable digital tether, based on our patented Persistence technology that is embedded into the firmware of endpoint devices. This technology can re-establish communication and control of a device, even when the device is off the corporate network and beyond the reach of traditional IT management and security tools.

•

Resilience – Our Absolute Resilience^® solutions provide the toolkit to automatically remedy and harden the endpoint against common fragility and decay in an increasingly complex and distributed environment. We are continuing to strengthen the capabilities of our Absolute Resilience solutions to solve the Dark Endpoint^™ challenge (enterprise computing devices that are not connected to the corporate network or are missing critical IT management applications).

•

Intelligence – Due to our distinctive endpoint position and the significant volume of anonymous data points we gather from activated devices, we are able to deploy machine learning to analyze these data sets in order to deliver real-time insights to our customers around the health, performance, and compliance of their devices and software. We believe that we are well organized to accelerate the enhancement of our capabilities in this area that we believe will enable our customers to optimize the security and efficiency of their endpoint devices.

•

Education – Historically the education sector has had unique technology requirements. The recent rapid shift to learn-from-home environments has led to certain increases in technology funding and many schools procuring and mobilizing systems for students, teachers, and administrators – in essence, moving to more of an enterprise model. As a result, we currently see a growing imperative role for Absolute in this sector, which includes helping ensure the student has access to a secure device capable of accessing online curriculum, allowing administrators to understand where devices are and if they are being used for their intended purposes, and helping manage the reissuance of devices. Further, we believe the ongoing enhancements in our enterprise software products can support those education organizations as their requirements shift to more closely mirror those of a typical enterprise customer.

Routes to Market

We have several routes to market which are grounded in our “land and expand” strategy, where we seek to grow our presence within a customer’s IT and security environments over time. We do this typically through three methods: (1) co-engaging with our PC OEM partners in order to drive sales in conjunction with sales of new endpoint devices from the PC OEM; (2) sales through our direct sales force to new and existing customers; and (3) sales through other indirect channel partners, including resellers, distributors and managed service providers around the world.

Sales and Marketing

Our primary go-to-market strategies are to generate new sales opportunities including through our PC OEM partners and to retain and expand with our existing customers. In addition, we generate sales and facilitate renewals via our other distribution channels, such as resellers, distributors, MSPs, and integrators. Our sales and marketing teams work closely with our channel partners to identify and close opportunities in an effort to expand our market penetration and opportunity pipeline. These teams’ responsibilities include strategic technology and sales program development with PC OEM partners and other software vendors, logistics

management, training, event coordination, advertising and special promotions, and day-to-day in-field sales cycle management with end customers.

Product Development and Operations

Our success is a result of our continuous drive for innovation. We recognize that continually enhancing and expanding the capabilities of our core technology and services is essential for carrying out our business strategy and maintaining and expanding our competitive position. We invest substantial resources in research and development to enhance our platform, and develop new features and functionality. We maintain a regular release process to update and enhance our existing solutions.

We have assembled teams of developers, engineers, product managers, and other high-skilled staff to develop and execute on the Company’s product roadmap. These teams are primarily based in our Vancouver, Canada, Ho Chi Minh City, Vietnam, Iowa, U.S.A., and Colorado, U.S.A. offices. We also have teams of operational staff responsible for operating our cloud, data center, and hosted service infrastructure.

Customers

We have a diversified customer base, with 12,920 enterprise and public sector customers and more than 11.5 million active endpoints managed by our solutions (as at December 31, 2020). Our end customers include corporations, healthcare organizations, educational institutions, governmental agencies, and individual consumers. We do not have economic dependence on any single end customer.

Partner Ecosystem

Our partner ecosystem is an essential component of our business strategy. Our key partners are PC OEMs who are both key collaborative technology partners and key distribution and reseller partners. We also have a robust and growing network of other partners such as distributors, resellers, MSPs and ISVs.

Our strong relationships with PC OEMs are foundational to our robust ecosystem. In part, we are able to leverage the sales organization of certain of those partners to market and resell our solutions. We are continually enhancing and expanding our PC OEM relationships from both the technology and go-to-market perspectives in order to drive value for them. Our PC OEM partners have adopted our Persistence technology as a standard and have embedded it in the firmware of their laptop, desktop, and/or tablet devices. This is an important collaboration for us, as the embedded support enhances the persistence (the ability to survive unauthorized or unintentional removal attempts) of our software, which is a key differentiator for us. Our Persistence technology is normally shipped in a dormant state with the device and is activated after the customer purchases our service and installs the Absolute software agent.

As of December 31, 2020, the following PC OEMs provide embedded support for our Persistence technology:

• Aava Mobile (since 2015)

• Acer (since 2009)

• ASUS (since 2009)

• Daten (since 2014)

• Dell (since 2005)

• Dynabook (since 2006)

• Fujitsu (since 2006)

• Fujitsu Client Computing Ltd. (since 2019)

• Getac (since 2008)

• HP (since 2005)

• Inforlandia LDA (since 2013)

• Intel (Classmate Computer) (since 2009)

• J.P. SA Couto (since 2020)

• Lenovo (since 2005)

• Microsoft (since 2014)

• MPS Mayorista (since 2015)

• Mustek Systems (since 2015)

• NCS Technologies, Inc. (since 2007)

• Panasonic (since 2006)

• PC Smart SA (since 2013)

• Pinnacle Africa (since 2015)

• Positivo Informatica SA (since 2014)

• Prestigio (since 2015)

• Samsung (since 2011)

• SMD Technologies (since 2020)

• VAIO (since 2017)

• Zebra (since 2015)

Intellectual Property and Patent Portfolio

We rely on a combination of patents, trademarks, copyright, trade secrets, confidentiality procedures, contractual provisions, and other measures to protect our proprietary information and technology. At December 31, 2020, we have a global portfolio of 143 issued patents and 27 patent applications in process. These patents cover a broad range of software and communication technologies and have varying expiry dates. We continue to develop and maintain our brand through copyright and trademarks. We have several trademarks in use in the U.S., Canada, and other jurisdictions worldwide. As we continue to innovate and expand beyond our current product offerings, we expect to continue to expand our portfolio of intellectual property (including patents and trademarks).

Subscription Business Model

We sell our solutions to end customers most often under a term license model in which customers acquire subscriptions to our cloud-based software services for a specified term, typically ranging from one to five years. The majority of these subscriptions are fully invoiced up-front for the entire licensed term and are non-refundable. We refer to our total invoiced sales in a period as our total “Billings”. Over Q1 and Q2 F2021, the prepaid term of our Billings averaged approximately 19 months (based on the ratio of the total amount invoiced over the annualized recurring revenue of the associated Billings).

We also offer enterprise and site license models, which provide customers with the option to license our software for multiple years on either a fully pre-paid basis or with an annual payment at the start of each contract year. The enterprise and site license models match the buying preferences of some of our customers and generally result in a positive impact to ARR compared to prepaid multi-year licenses.

From a financial reporting perspective, the amount we invoice is recorded at the foreign exchange rate in effect at the time of sale in deferred revenue on the statement of financial position and is recognized as revenue ratably over the contract term. Due to the fact that the majority of our Billings are for terms longer than one year, in general only 20-30% of total Billings reported for any given fiscal year are also recognized as revenue in the same fiscal year.

Seasonality

Given the annual budget approval process of many of our customers, we see seasonal patterns in our business. Our cash from operating activities is affected by the timing of our customer Billings, with cash collections in a particular quarter having a high correlation to Billings in the previous quarter. Historically, a higher concentration of Billings has occurred in the fourth quarter of each fiscal year due to higher activity in the North American education sector during this quarter. The strength of this seasonal pattern in the future will be impacted by the shifting relative proportions of our sales into the enterprise, government, and education sectors.

Competition

The markets we serve are increasingly competitive and are characterized by continuous and rapid changes in technology, customer needs, and industry standards. However, we have historically experienced few direct competitors for our offerings, which we believe are unique in the IT and security markets. On occasion, we encounter companies that offer capabilities that overlap with certain subsets of our product portfolio, such as endpoint hardware and software inventory management, compliance reporting, and data discovery. However, our product offerings often complement these other companies’ offerings, by providing status reporting on their presence and activity on the endpoint and the ability to self-heal and repair many applications.

We believe our competitive position in the market is built upon our patented Persistence technology that is embedded into the firmware of leading PC OEMs’ devices, the off-network capabilities of our solutions, broad device coverage, extensive PC OEM go-to-market relationships, and strong patent portfolio.

Impacts of the COVID-19 Pandemic

When the global COVID-19 pandemic broke out in early 2020, we responded quickly to ensure the health of our employees and to support our customers and business partners. We mobilized resources and established protocols that allowed us to adapt to the shifting environment, including:

•

putting in place measures to safeguard our employees by enabling work-from-home policies, systems, and tools, which we believe we were able to adapt to and implement quickly, partly as a result of our history of distributed operations;

•

focusing on the operational integrity of our business, by identifying operational efficiencies and actively managing short and long-term expenses; and

•

mobilizing to help our customers manage and measure the health and security of new work-from-home and learn-from-home environments, by accelerating the development of new product features that we believed customers would find especially useful in the shifting environment and, for a period of time, making available additional capabilities at no charge to existing customers who had not previously licensed them.

We are actively managing and evolving our preparedness plans and response activities to align with recommendations of the health and government authorities in the locations in which we operate. The COVID-19 pandemic is an unprecedented global challenge and it has placed every company and business in uncharted territory. While we are not immune to these challenging times, we believe that we have, and can continue to serve our customers around the world with valuable and necessary support and tools in these challenging times.

As of the date of this MD&A, we believe the underlying fundamentals of our business remain sound, notwithstanding the challenges presented by the current economic, political, and social environment:

•

With the rapid shifts in where and how people work and learn, we believe the relevance of solutions and technology like ours, which protect distributed devices and data, have gained importance.

•

We have long-term relationships with our customers, in the form of recurring SaaS contracts. Approximately 95% of our annual revenue for the year ended June 30, 2020 is in recurring SaaS business.

•

We expect that our ARR, which results from customer term subscriptions to our software service, to continue to provide stability in our revenue and also in profitability and cash flow, as we manage through these challenging times.

•

At December 31, 2020, we believe we have a strong balance sheet and sufficient liquidity to support our business objectives in the coming fiscal year. Our liquidity was further bolstered in October 30, 2020, with the completion of a public offering of Common Shares for gross proceeds of approximately $69 million. Proceeds, net of underwriting fees and expenses, were approximately $64 million. See below under “Shareholders’ Equity and Outstanding Share Data”.

Looking ahead, the full impact of the COVID-19 pandemic on our customers (potentially including cash conservation measures) and consequently on our business, are still unknown and highly unpredictable. Our past results may not be indicative of our future performance and historical trends in our financial performance may differ materially from future performance. Notwithstanding the continually evolving impacts of the COVID-19 pandemic, particularly the medium and long-term economic effects, we believe that this environment has only reinforced the need for organizations of various sizes and industries to modernize their businesses and workforces for the evolving world. We expect our cloud-based solutions, that help empower and secure distributed organizations, position us well to continue to help our customers through these unprecedented times. Please refer to specific risk factor regarding COVID-19 impacts below under “Risk and Uncertainties”.

Non-IFRS Measures and Key Metrics

Throughout this MD&A we refer to a number of measures and metrics which we believe are meaningful in the assessment of the Company’s performance. Many of these measures and metrics are non-standard measures under International Financial Reporting Standards (“IFRS”), do not have any standardized meaning under IFRS, and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS.

The purpose of these non-IFRS measures and key metrics is to provide supplemental information that may prove useful to readers who wish to consider the impact of certain non-cash or uncontrollable items on the Company’s operating performance. Share-based compensation and non-cash amortization of acquired intangible assets are being excluded from the Company’s operating expenses because the decisions which gave rise to these expenses were not made to increase sales in a particular period, but were made for the Company’s long-term benefit over multiple periods. While strategic decisions, such as those to issue share-based awards or to acquire intangible assets, are made to further the Company’s long-term strategic objectives and do impact the Company’s earnings under IFRS, these items affect multiple periods and management is not able to change or affect these items within any particular period. As such, supplementing IFRS disclosure with non-IFRS disclosure using the non-IFRS measures outlined below provides management with an additional view of operational performance by excluding expenses that are not directly related to

performance in any particular period. Management uses both IFRS and non-IFRS measures when planning, monitoring and evaluating the Company’s performance.

These measures and metrics, and their method of calculation or reconciliation to IFRS, are as follows:

a) Total ARR, Net Dollar Retention, and New Logo ARR

As the majority of our customer contracts are sold under prepaid multi-year term licenses, there is typically a significant lag between the timing of the invoice and the associated revenue recognition. As a result, we focus on the aggregate annual recurring revenue of our subscriptions under contract and generating revenue, measured by Annual Recurring Revenue (“ARR”), as an indicator of our future recurring revenues. We believe that increases in the amount of New Logo ARR, and improvement in our Net Dollar Retention, will accelerate the growth of Total ARR and, in turn, our future revenues.

Total ARR is a key metric and measures the amount of annual recurring revenue we will receive from our customers under contract at a point in time, and therefore is an indicator of our future revenue streams. Total ARR will change over a period through the retention, attrition and expansion of existing customers and the acquisition of new customers. As Total ARR is measured at a point in time, there is no similar measure under IFRS against which it can be reconciled.

Net Dollar Retention (previously “Net ARR Retention”) is a key metric and measures the percentage increase or decrease in Total ARR at the end of a year for customers that comprised Total ARR at the beginning of the year. This metric provides insight into the effectiveness of our activities to retain and expand the ARR of our existing customers.

New Logo ARR (previously “ARR from New Customers”) is a key metric and measures the addition to Total ARR from sales to new customers during a period.

b) Adjusted Operating Expenses

A number of significant non-cash expenses are reported in our Cost of Revenue and Operating Expenses. In addition, restructuring and reorganization charges and post-retirement benefits are also reported in Operating Expenses. Management defines “Adjusted Operating Expenses” as IFRS Cost of Revenue, Sales and Marketing, Research and Development, and General and Administration expenses adjusted for these items, as we believe that analyzing these expenses exclusive of these items provides a useful measure of the cash invested in operating the ongoing business. The non-cash items include share-based compensation, amortization of intangible assets, and depreciation of property and equipment and amortization of right of use assets.

Specifically, management adjusts for the following items in computing its Adjusted Operating Expenses:

Share-based compensation: Our compensation strategy includes the use of share-based awards to attract and retain key employees, executives and directors. It is principally aimed at aligning their interests with those of our shareholders and at long-term employee retention, rather than to motivate or reward operational performance for any particular period. Thus, share-based compensation expense varies for reasons that are generally unrelated to operational decisions and performance in any particular period.

Amortization of Intangible Assets: We believe that amortization of intangible assets is not necessarily reflective of current period operational activities. In particular, the amortization of acquired technologies and customer relationships relates to items arising from pre-acquisition activities. These are costs that are determined at the time of an acquisition or when other intangible assets are acquired. While it is continually reviewed for potential impairment, amortization of the cost is a static expense, one that is typically not affected by operations during any particular period.

Depreciation of Property and Equipment and Amortization of Right of Use Assets: We believe that depreciation / amortization of property and equipment and right of use assets is not necessarily reflective of current period operational activities. In particular, the costs associated with these assets relate to operational decisions made in prior periods. Depreciation / amortization of these costs is a static expense, one that is typically not affected by operations during any particular period.

Restructuring or Reorganization Charges and Post-Retirement Benefits: We believe that costs incurred in certain significant post-retirement benefits afforded to executives upon departure from the Company, are not necessarily reflective of current period operational activities. In particular, these items relate to decisions which will impact future operating periods. The magnitude of these expenses is typically determined by contractual law, common law, or by statute, and is unaffected by operations and performance in any particular period.

Non-recurring Items: We believe that costs that are non-recurring, unusual or non-operating in nature, such as non-recurring, unusual or non-operating tax, legal, restructuring and other one-time corporate expenses, are not necessarily reflective of current period operational activities.

Please see the following for a reconciliation of Operating Expenses, comprised of Cost of Revenue (“COR”), Sales and Marketing (“S&M”), Research and Development (“R&D”), and General and Administration (“G&A”) expenses to Adjusted Operating Expenses, comprised of Adjusted Cost of Revenue, Adjusted Sales and Marketing, Adjusted Research and Development, and Adjusted General and Administration expenses:


	Three months ended December 31,						Six months ended December 31,
(in millions)	2020			2019			2020			2019
Cost of Revenue	$	3.3		$	3.0		$	6.5		$	6.3
Adjustments
Amortization of right of use assets⁽¹⁾		(0.1	)		(0.1	)		(0.3	)		(0.3	)

Adjusted COR	$	3.2		$	2.9		$	6.2		$	6.0

Sales and Marketing	$	10.2		$	9.5		$	20.3		$	19.0
Adjustments
Amortization of right of use assets⁽¹⁾		(0.2	)		(0.1	)		(0.3	)		(0.2	)

Adjusted S&M	$	10.0		$	9.4		$	20.0		$	18.8

Research and Development	$	5.8		$	4.2		$	10.9		$	7.9
Adjustments
Amortization of right of use assets⁽¹⁾		(0.1	)		(0.1	)		(0.3	)		(0.3	)

Adjusted R&D	$	5.7		$	4.1		$	10.6		$	7.6

General and Administration	$	4.9		$	4.1		$	8.3		$	7.5
Adjustments
Depreciation of property and equipment⁽²⁾		(0.8	)		(0.8	)		(1.7	)		(1.7	)
Amortization of right of use assets⁽¹⁾		(0.2	)		(0.1	)		(0.2	)		—
Non-recurring Items		(1.0	)		—			(1.0	)		—

Adjusted G&A	$	2.9		$	3.2		$	5.4		$	5.8

Share-based Compensation⁽³⁾	$	2.6			1.1			5.1			2.2
Total COR and Operating Expenses	$	26.8		$	21.9		$	51.1		$	42.9
Adjustments
Depreciation of property and equipment⁽²⁾		(0.8	)		(0.8	)		(1.7	)		(1.7	)
Amortization of right of use assets⁽¹⁾		(0.6	)		(0.4	)		(1.1	)		(0.8	)
Non-recurring Items		(1.0	)					(1.0	)
Share-based compensation⁽³⁾		(2.6	)		(1.1	)		(5.1	)		(2.2	)

Adjusted Operating Expenses	$	21.8		$	19.6		$	42.2		$	38.2

Notes:

(1)	Amortization of right of use assets per the Statement of Cash Flows.

(2)	Depreciation of property and equipment per the Statement of Cash Flows.

(3)	Share-based compensation per the Statement of Operations.

c)	Adjusted Earnings before Interest, Taxes, Depreciation and Amortization (“Adjusted EBITDA”)

Management believes that analyzing operating results exclusive of the significant non-cash items noted above provides a useful measure of the Company’s performance, as it helps illustrate underlying trends in our business that could otherwise be masked by the effect of the income or expenses that are not indicative of the core operating performance of our business that are excluded from Adjusted EBITDA. The term Adjusted EBITDA refers to net income before adding/deducting interest income or expense, income taxes, depreciation / amortization of intangible assets, property and equipment, and right of use assets, foreign exchange gains or losses, share-based compensation, restructuring or reorganization charges and post-retirement benefits and non-recurring items.

Adjusted EBITDA has limitations as an analytical tool, and it should not be considered in isolation or as a substitute for analysis of other IFRS financial measures. Some of the limitations of Adjusted EBITDA are that it excludes recurring expenses for interest payments, does not reflect the dilution that results from stock-based compensation, and does not reflect the cost to replace amortized property and equipment and right of use assets. It may be calculated differently by other companies in our industry, limiting its usefulness as a comparative measure.

The following table provides a reconciliation of our Net Income to Adjusted EBITDA:


	Three months ended December 31,						Six months ended December 31,
(in millions)	2020			2019			2020			2019
Net income	$	1.9		$	2.7		$	4.5		$	6.2
Adjustments
Depreciation of property and equipment⁽¹⁾		0.8			0.8			1.7			1.7
Amortization of right of use assets⁽²⁾		0.6			0.4			1.1			0.8
Non-recurring Items		1.0			—			1.0			—
Share-based compensation⁽³⁾		2.6			1.1			5.1			2.2
Finance income, net⁽⁴⁾		(0.0	)		(0.1	)		(0.0	)		(0.3	)
Interest on lease liability⁽⁵⁾		0.1			0.1			0.3			0.3
Foreign exchange loss⁽⁶⁾		0.3			0.1			0.5			0.0
Income tax expense⁽⁷⁾		0.7			1.1			2.0			2.3

Adjusted EBITDA	$	8.0		$	6.2		$	16.2		$	13.2

Notes:

(1)	Depreciation of property and equipment per the Statement of Cash Flows.

(2)	Amortization of right of use assets per the Statement of Cash Flows.

(3)	Share-based compensation per the Statement of Operations.

(4)	Finance income, net per the Statement of Operations.

(5)	Interest on lease liability per the Statement of Operations.

(6)	Foreign exchange loss per the Statement of Operations.

(7)	Income tax expense per the Statement of Operations.

d)	Billings

See the “Subscription Billings” and “Seasonality” sections of this MD&A for a detailed discussion of Billings, which is a key metric. Billings are a component of deferred revenue (see Note 10 of the notes to the Q2 F2021 Interim Consolidated Financial Statements) and result from invoiced sales of our solutions. Most of our Billings relate to prepaid cloud services subscriptions. We view Cash from Operating Activities as a meaningful performance metric, and the total amount of our Billings in a period will have a material impact on our operating cash flows.

Management Dashboard of Selected Metrics

Please see Exhibit A to this MD&A for management’s Selected Operating and Financial Metrics dashboard. Management has established this dashboard of selected operating and financial metrics across multiple periods that we believe is helpful in reviewing various performance measures for the business. This dashboard is not intended to establish or replace the key metrics for the Company, as those metrics are set out in the section above titled “Non-IFRS Measures and Key Metrics”.

Financial Review and Performance Analysis

Revenue

Total revenue in Q2 F2021 increased 16% to $29.9 million from $25.8 million in Q2 F2020. This was represented by a 16% increase in recurring revenue with non-recurring professional services and other revenue remaining consistent. The increases in recurring revenue are a result of historical increases in Total ARR, as Total ARR is an indicator of future revenue growth (see the “Total Annual Recurring Revenue” section in this MD&A).

In general, we believe our future recurring revenue performance will be closely aligned with the net growth in Total ARR.

The table below provides details of our revenue, and the associated year-over-year increase (decrease), over the trailing five quarters:


(in millions)	Q2 F2021			Q1 F2021			Q4 F2020			Q3 F2020			Q2 F2020
Recurring revenue⁽¹⁾	$	29.0		$	27.6		$	25.9		$	25.1			24.9
Other⁽²⁾		0.9			0.9			1.3			1.0			0.9

Total Revenue	$	29.9		$	28.5		$	27.2		$	26.1		$	25.8

Year-over-year increase (decrease)
Recurring revenue⁽¹⁾		16	%		12	%		8	%		5	%		6	%
Other⁽²⁾		(0	%)		(14	%)		6	%		1	%		(11	%)

Total Revenue		16	%		11	%		7	%		5	%		6	%

(1)	Cloud services and managed service revenues are included as part of recurring revenue and Total ARR (please refer to the “Critical Accounting Policies and Estimates” section of this MD&A).

(2)	Other revenue represents revenue derived from short-term professional services and ancillary product lines, including consumer products.

The table below provides a comparison of our Q2 and year-to-date revenue:


(in millions)	Q2 F2021		Q2 F2020		Increase (decrease)			YTD F2021		YTD F2020		Increase (decrease)
Revenue recognized from:
Cloud services⁽¹⁾	$	27.7	$	23.9		16	%	$	54.0	$	47.5		14	%
Managed services⁽¹⁾		1.3		1.0		24	%		2.5		2.0		22	%

Recurring Revenue		29.0		24.9		16	%		56.5		49.5		14	%
Other ⁽²⁾		0.9		0.9		—			1.9		1.9		(7	%)

Total Revenue		29.9	$	25.8		16	%		58.4	$	51.4		14	%

(1)	Cloud services and managed service revenues are included as part of Total ARR (please refer to the “Critical Accounting Policies and Estimates” section of this MD&A).

(2)	Other revenue represents revenue derived from short-term professional services and ancillary product lines, including consumer products

Total Annual Recurring Revenue

Total ARR measures the annualized value of recurring revenue we have under contract with our customers and is generating revenue at a point in time and is therefore a direct indicator of our future recurring revenue streams. The increase or decrease in Total ARR during a given period measures our success in impacting the amount of future annual revenue that will be earned by the Company. Total ARR will increase (or decrease) in a period through the retention (or attrition) and expansion (or contraction) of cloud and managed service subscriptions from existing customers, and through the acquisition of new customers.

The following table shows the components of Total ARR broken out by industry vertical and geography. In addition, it shows the percentage increase (decrease) in Total ARR over the trailing four quarters (“T4Q”), as well as compared to the prior sequential quarter (“QoQ”).


(in millions)	Q2 F2021			Q1-F2021			Q4 F2020			Q3-F2020			Q2 F2020
Total ARR	$	117.5		$	111.7		$	108.3		$	101.4		$	100.3

Enterprise & Government		*77.6*			75.0			74.0			70.6			69.6
Education		*39.9*			36.7			34.3			30.8			30.7
North America		*98.9*			95.0			93.5			87.8			87.4
International		*18.6*			16.7			14.8			13.6			12.9
T4Q Growth – Total		17	%		13	%		11	%		7	%		5	%

Enterprise & Government		12	%		12	%		14	%		13	%		12	%
Education		30	%		14	%		4	%		(7	%)		(8	%)
North America		13	%		10	%		9	%		4	%		3	%
International		43	%		34	%		20	%		24	%		23	%
Sequential QoQ Growth – Total		5	%		3	%		7	%		1	%		1	%

Enterprise & Government		3	%		1	%		5	%		2	%		4	%
Education		9	%		7	%		11	%		0	%		(4	%)
North America		4	%		2	%		7	%		1	%		1	%
International		11	%		13	%		8	%		6	%		4	%

Our success with respect to the retention and expansion of service subscriptions from existing customers during a period is represented by our Net Dollar Retention rate, and our success with respect to acquiring new customers during a period is measured by the amount of incremental ARR from new customers (“New Logo ARR”). We believe that our ability to renew our customers more efficiently, and cost effectively, through inside sales and/or partnerships, will create more selling capacity within our direct sales organization. In Q3-F2020 we engaged ServiceSource, a third party outsourced sales renewal organization, intending for this initiative to help improve our renewal efficiency over time. Combined, we believe these factors will improve our Net Dollar Retention rate and drive increased New Logo ARR. In Q2 F2021, Net Dollar Retentionfrom existing customers was 109%, up from 100% in Q2 F2020. New Logo ARR was $1.5 million in Q2 F2021, down from $1.8 million in Q1-F2021 and up from $1.3 million in Q2 F2020.

We believe that our market growth opportunity continues to be strong in the Enterprise and Government verticals, and therefore we continue to direct a substantial portion of our sales and marketing and product development investment to target these markets. The shift to work from home and hybrid working environments resulting from the COVID-19 pandemic appears to have reaffirmed IT and security teams need

for the services provided by Absolute in order to effectively manage and secure devices off corporate networks. Our Enterprise and Government verticals remain well diversified, and overall the trends we have been experiencing remain positive. However, uncertainty in the macro-economic environment has resulted in headwinds in specific sectors, such as healthcare, professional services, and retail. We believe we are well positioned to continue to provide services that help organizations stay connected to, and to service, their entire endpoint estate.

These dynamics resulted in the 12% T4Q growth experienced in Enterprise and Government, and we believe that the shifting market dynamics and our continued investment in these verticals will continue to drive growth in the future. We achieved New Logo ARR of $1.1 million within these verticals in Q2 F2021, compared to $1.3 million in Q2 F2020.

As discussed previously under “Business and Growth Strategy”, while we had been experiencing headwinds in the Education vertical over the past few fiscal years, Q4 F2020 saw rapid changes for Educational organizations as a result of a shift to learn from home environments. This shift resulted in IT teams having to mobilize not just students, but also teachers and administrators, as they were required to work, teach, and learn remotely. This shift continued to positively impact business in Q2 F2021 in the Education vertical, where we achieved T4Q growth of 30% and continued to see improved New Logo ARR of $0.4 million, compared to $0.07 million in Q2 F2020. In Q2 F2021, New Logo ARR included no customer greater than $0.5 million.

At December 31, 2020, Total ARR was represented 66% by Enterprise and Government vertical customers and 34% by Education vertical customers. From a geographic perspective, December 31, 2020 Total ARR was represented 84% by North American customers and 16% by international customers. As a result of its smaller ARR, we expect international results to fluctuate with a higher degree of variability.

COR and Operating Expenses


(in millions)	Q2 F2021		Q2 F2020		Increase (decrease)			YTD F2021		YTD F2020		Increase (decrease)
Cost of revenue	$	3.3	$	3.0		11	%	$	6.5	$	6.3		3	%

Sales and marketing		10.2		9.5		7	%		20.3		19.0		6	%
Research and development		5.8		4.2		39	%		10.9		7.9		38	%
General and administration		4.9		4.1		18	%		8.3		7.5		12	%
Share-based compensation		2.6		1.1		139	%		5.1		2.2		130	%

COR and Operating Expenses	$	26.8	$	21.9		22	%	$	51.1	$	42.9		19	%

Adjusted Operating Expenses⁽¹⁾


(in millions)	Q2 F2021		Q2 F2020		Increase (decrease)			YTD F2021		YTD F2020		Increase (decrease)
Cost of revenue⁽¹⁾	$	3.2	$	2.9		10	%	$	6.2	$	6.0		3	%

Sales and marketing⁽¹⁾		10.0		9.4		6	%		20.0		18.8		6	%
Research and development⁽¹⁾		5.7		4.1		38	%		10.6		7.6		38	%
General and administration⁽¹⁾		2.9		3.2		(8	%)		5.4		5.8		(5	%)

Adjusted Operating Expenses⁽¹⁾	$	21.8	$	19.6		11	%	$	42.2	$	38.2		10	%

Number of employees at December 31		526		472

Adjusted Operating Expenses and Adjusted EBITDA as a Percentage of Revenue⁽¹⁾


(percentage of Revenue)	Q2 F2021			Q2 F2020			YTD F2021			YTD F2020
Cost of revenue (“COR”)⁽¹⁾		11	%		11	%		11	%		12	%
Sales and marketing (“S&M”)⁽¹⁾		34	%		37	%		34	%		37	%
Research and development (“R&D”)⁽¹⁾		19	%		16	%		18	%		15	%
General and administration (“G&A”)⁽¹⁾		10	%		12	%		9	%		11	%
Adjusted Operating Expenses⁽¹⁾		73	%		76	%		72	%		74	%
Adjusted EBITDA⁽¹⁾		27	%		24	%		28	%		26	%

(1)	Please refer to the “Non-IFRS Measures and Key Metrics” section of this MD&A for a reconciliation of Operating Expenses and Net Income to Adjusted Operating Expenses and Adjusted EBITDA, respectively.

Adjusted Operating Expenses and Adjusted EBITDA

Adjusted Operating Expenses in Q2 F2021 were $21.8 million, up 11% from $19.6 million in Q2 F2020 and year-to-date adjusted operating expenses were $42.2 million, up 10% over the prior year-to-date.

The year-over-year increase in adjusted operating expenses in F2021 was primarily attributable to increased Adjusted R&D expenses owing to higher headcount levels compared to the prior year. In addition, prior year Adjusted R&D expenses benefited from a $1.2 million increased of Canadian government Scientific Research and Experimental Development investment tax credits (“SRED ITCs”) upon the successful assessment, and filing, of historical claims. Our Adjusted S&M expenses were higher in Q2 F2021 resulting primarily from increased personnel related expenses related to expanded headcount, including amortized commissions.

Adjusted EBITDA was $8.0 million, or 27% of revenue, in Q2 F2021, up from $6.2 million, or 24% of revenue, in Q2F2020. Year-to-date Adjusted EBITDA was $16.2 million versus $13.2 million in the comparative period; respectively 28% and 26% of revenue.

Cost of Revenue (“COR”) and Gross Margin

Cost of revenue includes the costs of operating our SaaS-hosted infrastructure, customer experience and support, professional and investigative services, as well as service guarantee costs and allocated overhead.

On an overall basis, COR was $3.3 million in Q2 F2021, an increase of 11% over $3.0 million in Q2 F2020. Year-to-date COR was $6.5 million in F2021 versus $6.3 million in F2020, an increase of 3%. Gross margin has improved approximately 1% and was 89% in Q2 F2021 and 88% in Q2 F2020. Year-to-date 89% in F2021 and 88% in F2020.

Adjusted COR was $3.2 million in Q2 F2021 versus $2.9 million in Q2 F2020, an increase of 10%. Year-to-date Adjusted COR was $6.2 million versus $6.0 million, an increase of 3%. The increase in Adjusted COR was primarily due to increased direct salaries expenses on higher headcount.

We exited Q2 F2021 with a headcount of 84 in this area as compared to 78 at June 30, 2020 and 78 at December 31, 2019.

Sales and Marketing (“S&M”)

Sales and marketing expenses consist of salaries and related expenses for sales, marketing, partner support and business development personnel, amortization of deferred commission expenses, marketing automation, program and event expenditures, travel and entertainment expenses, and allocated overhead. We undertake a number of general marketing initiatives including: participation in tradeshows and partner events; marketing automation; market development programs with partners; public and industry analyst relations; webinars; and advertising expenditures. These expenditures are incurred to increase awareness with partners and customers, drive coverage with industry analysts and help to establish us as the recognized leader in the Endpoint Resilience market.

In Q2 F2021, S&M expense increased 7% to $10.2 million from $9.5 million in Q2 F2020. Adjusted S&M expense was $10.0 million in Q2 F2021, up 6% from $9.4 million in Q2 F2020. As a percentage of revenue, Adjusted S&M expenses were 34% in Q2 F2021, down from 37% in the comparative period of F2020.

Year-to-date S&M expense of $20.3 million and Adjusted S&M expense of $20.0 million increased 6% from $19.0 million and $18.8 million respectively. Year-to-date Adjusted S&M expenses were 34% of revenue in F2021 versus 37% for the comparative period.

Our F2021 S&M expense was primarily impacted by increased personnel related expenses related to expanded headcount, including amortized commissions, partially offset by lower travel and entertainment expenses, as compared to F2020. We exited Q2 F2021 with a headcount of 161 in S&M, as compared to 145 at June 30, 2020 and 147 at December 31, 2019.

Research and Development (“R&D”)

Research and development expenses consist primarily of salaries and related expenses for our research and development staff, contractor and outsourcing costs, and allocated overhead. These expenses are partially offset by SRED ITCs.

R&D expense was $5.8 million in Q2 F2021, up 39% from $4.2 million in Q2 F2020. Adjusted R&D expense was $5.7 million in Q2 F2021, up 38% from $4.1 million in Q2 F2020. Year-to-date R&D expense was $10.9 million versus $7.9 million in the comparative period; a 38% increase. Adjusted R&D expense year-to-date was $10.6 million versus $7.6 million in the comparative period, a 38% increase.

Total SRED ITCs recorded were $0.5 million in Q2 F2021 as compared to $1.0 million in Q2 F2020 and $1.0 million in the year-to-date period of F2021 compared to $2.2million in F2020. In the year-to-date period of F2020, we recorded a $1.2 million positive adjustment to SRED ITC as a result of the assessment of certain historical claims, and there was no comparable adjustment in F2021.

The increase in our Q2 F2021 Adjusted R&D expense primarily reflects the impact of increased personnel related expenses resulting from expanded headcount levels, in addition to the impact of the decreased SRED ITCs as noted above.

We exited Q2 F2021 with a headcount of 223 in R&D, compared to 218 at June 30, 2020 and 192 at December 31, 2019.

General and Administration (“G&A”)

G&A expenses consist of salaries and related expenses for finance and accounting, human resources, legal, administration, bad debt provisions, professional fees, other corporate expenses and allocated overhead.

G&A expenses were $4.9 million in Q2 F2021, up 18% from $4.1 million in Q2F2020. Adjusted G&A expenses were $2.9 million in Q2 F2021, down 8% from $3.2 million in Q2 F2020. When measured as a percentage of revenue, Adjusted G&A expenses were 10% in Q2 F2021, down from 12% in Q2 F2020.

In the year-to-date period G&A expenses were $8.3 million and $7.5 million in the comparative period; a 12% increase. Year-to-date Adjusted G&A expenses were $5.4 million in F2021 and $5.8 million in the comparative period, a 5% decrease.

The decrease in Adjusted G&A expenses in Q2 F2021 compared to Q2 F2020 was primarily a result of lower travel and entertainment expenses and personnel related expenses as compared to F2020. This decrease was partially offset by increased general corporate expenses.

We exited Q2 F2021 with a headcount of 58 in G&A, compared to 58 at June 30, 2020 and 55 at December 31, 2019.

Share-based Compensation

Share-based compensation expenses are related to fair-value based measures related to our various share-based compensation arrangements.

Share-based compensation was $2.6 million in Q2 F2021, up from $1.1 million in Q2 F2020.

Year-to-date share-based compensation was $5.1 million in F2021 versus $2.2 million in F2020; a 130% increase.

The increase in share-based compensation in F2021 is primarily related to increased expenses related to restricted share units and performance share units, which reflects increased levels of equity grants in the preceding 12 month period, as compared to F2020. In addition, share-based compensation expense was impacted by higher expense related to deferred share units, which are marked to market each reporting period.

Operating Income and Adjusted EBITDA

We recorded IFRS operating income of $3.1 million in Q2 F2021, down from $3.9 million in Q2 F2020. In the year-to-date period of F2021 and F2020 we recorded IFRS operating income of $7.3 million and $8.6 million respectively.

Adjusted EBITDA was $8.0 million in Q2 F2021, up 30% from $6.2 million Q2 F2020. As a percentage of revenue, Adjusted EBITDA was 27% in Q2 F2021, compared to 24% in Q2 F2020. Year-to-date Adjusted EBITDA was $16.2 million in F2021 versus $13.2 million in F2020, a 23% increase. As a percentage of revenue, year-to-date Adjusted EBITDA was 28% in F2021 versus 26% in F2020.

The increase in Adjusted EBITDA is related to increased revenues (as outlined above under “Revenue”) with smaller increases in Adjusted Operating Expenses (as outlined above under “Adjusted Operating Expenses”), respectively.

Other Income and Expenses

Absolute earns finance income on its cash and investment resources beyond immediate operating requirements. We recorded finance income of $25,000 in the year-to-date period of F2021 compared to $241,000 in the comparative period of F2020. The decrease in finance income reflects lower levels of invested assets, and lower investment yields, as compared to the comparative period of F2020.

Other income and expenses also include interest expense on lease liabilities, and foreign exchange gains and losses incurred primarily on the translation of Canadian dollar and U.K. pound cash, investment and liability balances.

In Q2 F2021 and Q2 F2020, we recorded $143,000 and $127,000 (year to date F2021 - $281,000 and year-to-date F2020 $258,000) respectively, in interest expense on lease liabilities. In addition, we experienced a foreign exchange loss of $300,000 in Q2 F2021, as compared to a loss of $40,000 in Q2 F2020 (year-to-date F2021 $486,000 and year-to-date F2020 $53,000 respectively).

In F2021 and F2020, the foreign exchange loss resulted from quarter fluctuations between the U.S. and Canadian dollar. In F2021, the foreign exchange loss resulted primarily from the revaluation of the Company’s lease liabilities, a significant portion of which are denominated in Canadian dollars.

Income Taxes

Our overall effective tax rate is significantly impacted by the source of income or losses amongst our subsidiaries as a result of varying tax rates in different jurisdictions. In addition, our overall effective tax rate is impacted by share-based compensation, which is generally not deductible for income tax purposes. We are also subject to foreign exchange fluctuations on deferred tax balances originating in foreign jurisdictions, the impact of non-recognition of deferred tax assets in some jurisdictions, and the impact of changes in statutory tax rates.

In Q2 F2021, we recorded current tax expense of $1.5 million and a deferred tax recovery of $801,000, as compared to a current tax recovery of $35,000 and a deferred tax expense of $1.2 million in Q2 F2020.

The difference between our effective tax rate in Q2 F2021 of 27.9% (Q2 F2020 – 29.60%) and our statutory tax rate of 27.0% (Q2 F2020 – 27.0%) is primarily due to the interplay of the factors mentioned above. In Q2 F2021 and Q2 F2020, our effective tax rate was impacted by non-deductible expenses in our Canadian operations. In F2021 and F2020, our current tax position in Canada is net of SRED ITCs to be claimed, which are presented as a reduction of research and development expenses.

Net Income and Comprehensive Income

The Company recorded net income in Q2 F2021 of $1.9 million, a decrease of 30% from $2.7 million in Q2 F2020. In Q2 F2021, we recorded total comprehensive income of $2.5 million, reflecting net income and the impact of unrealized foreign exchange forward gains recorded in Other Comprehensive Income within shareholders’ deficiency at December 31, 2020.

In the year-to-date period of F2021, we recorded net income of $4.5 million, compared to $6.2 million in the comparative period of F2020, a decrease of 27%.

Net income in the current year reflects the impact of IFRS operating income and income tax expense, as described above.

Cash from Operating Activities

Our quarterly cash from operating activities is significantly impacted by the timing of our Billings, with cash collections in one quarter having a high correlation to Billings in the previous quarter.

Our Billings in a period represent amounts related to expiring contract renewals, existing customer expansions and product upgrades, and new customer purchases. Our Billings in a period are heavily influenced by the expiration of contracts sold in prior periods. As a result, a comparison of current period Billings to prior year Billings may be misleading, as a year-over-year increase/decrease in Billings may infer an expansion/contraction of Total ARR when no such expansion/contraction exists. For this reason, we believe that the change in Total ARR is a more accurate measure of our revenue generating activities.

The table below provides details of our Billings over the trailing six quarters:


(in millions)	Q2 F2021		Q1 F2021		Q4 F2020		Q3 F2020		Q2 F2020		Q1 F2020
Billings	$	35.5	$	34.3	$	42.2	$	24.9	$	23.8	$	22.0

Our average prepaid contract term has generally trended lower in recent quarters, which is a result of our deliberate focus on our sales incentives geared toward maximizing the ARR of our Billings. The average prepaid contract term in Q2 F2021 was 19 months. The average contract term of our customer Billings will fluctuate depending on customer buying patterns, which will impact our operating cash flows.

In Q2 F2021, we generated cash from operating activities of $13.4 million, up from $2.2 million in Q2 F2020. In the year-to-date period of F2021, we generated cash from operating activities of $28.1 million, up from $9.6 million in the comparative F2020 period. Our Q2 F2021 cash from operations was positively impacted primarily by improved Adjusted EBITDA (as outlined above under “Operating Income and Adjusted EBITDA”) in addition to working capital changes, including higher Billings and collections of accounts receivable, as compared to F2020.

Liquidity and Capital Resources

We believe Absolute is in a strong financial position, with no debt and the financial resources necessary to fund our operating and capital requirements and to support our business objectives. At December 31, 2020, our cash, cash equivalents and short-term investments were $132.0 million, compared to $47.1 million at June 30, 2020. The Company’s cash and investment position was impacted in the year-to-date period of F2021 by cash from operations, an amount of $1.1 million in capital expenditures, and outlays of $5.6 million for dividends and $0.9 million in lease liability repayments. These amounts were offset by the $64.6 million in net proceeds on the issuance of stock inclusive of the completion of an underwritten public offering (the “Offering”) in the United States and Canada of 6,272,727 Common Shares at a price of $11.00 per Common Share, for aggregate gross proceeds of approximately $69 million. Proceeds of the Offering, net of underwriting fees and expenses, were approximately $64 million.

Based on current sales and investment plans, management believes that the Company has sufficient capital resources to support its business objectives for the coming year.

Accounts receivable

Accounts receivable balances decreased to $22.3 million as at December 31, 2020 (63% of Q2 F2021 Billings) from $29.0 million at June 30, 2020 (69% of Q4 F2020 Billings). The decrease is primarily due to decreased Billing volumes in Q2 F2021 as compared to Q4 F2020.

At December 31, 2020, 2% of the Company’s accounts receivable balance was over 90 days past due, up from 1% at June 30, 2020. As at December 31, 2020, 45%, 28%, and 8% (June 30, 2020 – 55%, 16%, and 16%) of the receivable balances are owing from three OEM and distributor partners. At June 30, 2020, these three partners comprised 55%, 16%, and 16%, respectively, of our total accounts receivable

Deferred revenue

Deferred revenue was $154.1 million as at December 31, 2020, compared to $142.6 million at June 30, 2020. Deferred revenue is comprised of the unamortized portion of deferred revenue from our Billings, which is amortized ratably to revenue over time.

The scheduled recognition of deferred revenue is as follows:


(in millions)	F2021		F2022		F2023		F2024		F2025		Total
Revenue to be recognized	$	52.3	$	55.8	$	31.0	$	11.7	$	3.3	$	154.1

Current taxes and deferred income tax assets

At December 31, 2020, we had current taxes receivable of $545,000 and current taxes payable of $23,000, compared to current taxes receivable of $112,000 and current taxes payable of $382,000 at June 30, 2020. In F2021 and F2020, our current tax position in Canada is net of SRED ITCs to be claimed, which are presented as a reduction of research and development expenses. Our current tax receivable primarily relates to payments of tax instalments, and our current taxes payable relates to current taxes in jurisdictions in which we have taxable income.

At December 31, 2020, we had total deferred income tax assets of $22.4 million, compared to $22.3 million at June 30, 2020. These deferred tax assets are primarily attributable to the future benefit of deferred revenue balances, operating tax loss carry forwards in our U.K. operations, and to amounts relating to SRED ITCs in our Canadian operations. Management believes these deferred income tax assets are more likely than not to be realized.

The Company operates in various tax jurisdictions and, accordingly, the Company’s income is subject to varying rates of tax. Losses incurred in one jurisdiction cannot be used to offset income taxes payable in another. The Company’s ability to use income tax losses and future income tax deductions is dependent upon the profitable operations of the Company in the tax jurisdictions in which such losses or deductions arise.

In assessing the recognition of deferred income tax assets, management considers whether it is more likely than not that some portion, or all of the deferred income tax assets will be realized. The ultimate realization of deferred income tax assets is dependent upon the generation of future taxable income during the years in which the temporary differences are deductible. To the extent that management believes that the realization of the deferred income tax assets does not meet the more likely than not realization criteria, deferred tax assets are not recognized.

Shareholders’ Equity and Outstanding Share Data

At December 31, 2020, Absolute had shareholders’ equity of $25.1 million. In evaluating shareholders’ equity, management believes it is important to consider the $154.1 million of deferred revenue carried on the statement of financial position. Deferred revenue represents prepaid (or due to be paid in full on payment terms) and non-refundable revenue, on which we expect to generate high margins when recognized in income, as much of the associated contract acquisition costs are already included in the operating deficit.

On October 30, 2020, we completed the underwritten public Offering in the United States and Canada of 6,272,727 Common Shares at a price of $11.00 per Common Share, for aggregate gross proceeds of approximately $69 million. Proceeds, net of underwriting fees and expenses of the Offering, were $64 million. The Company intends to use the proceeds of the Offering for general corporate purposes, including to fund ongoing operations, to fund growth initiatives, and/or for working capital requirements, as set out in more detail in the prospectus documents filed publicly in connection with the Offering. We may also use a portion of the remaining net proceeds, if any, to acquire or invest in complementary businesses, technologies or other assets, although we currently have no agreements or understandings with respect to any such acquisitions or investments.

On October 28, 2020, the Company’s Common Shares began trading on the Nasdaq under the ticker symbol “ABST”. The Common Shares continue to trade on the TSX, but as of October 29, 2020 the TSX ticker symbol changed from “ABT” to “ABST” to align with the Nasdaq ticker symbol.

At December 31, 2020, the Company had 49,177,699 (February 9, 2021 – 49,215,280) issued and outstanding Common Shares. The following rights to receive Common Shares are issued and outstanding at December 31, 2020:

•

Stock Option Plan: 714,127 (February 9, 2021 – 714,127) stock options granted and outstanding. The stock options have a weighted average exercise price of CAD$7.86 per share and a weighted average term to expiry of 4.0 years. There have been no stock options granted in F2021 to the date of this MD&A.

•

Performance and Restricted Share Unit (“PRSU”) Plan: 823,543 (February 9, 2021 – 823,543) Performance Share Units (“PSUs”) granted and outstanding. The PSUs have a weighted average term to expiry of 4.1 years. There have been 220,531 PSUs granted in F2021 to the date of this MD&A.

•

PRSU Plan: 2,101,591 (February 9, 2021 – 2,101,591) Restricted Share Units (“RSUs”) granted and outstanding. The RSUs have a weighted average term to expiry of 1.6 years. There have been 601,944 RSUs granted in F2021 to the date of this MD&A.

•

Employee Share Ownership Plan (“ESOP”): Under the ESOP, employees may purchase Common Shares issued from treasury during two discrete offering periods each year. The issuance price of Common Shares is 85% of the lower of the closing Common Share price on the first and last day of the relevant offering period, and therefore can result in an issuance price that is below the market price of the Common Shares on the date of issuance. A total of 350,000 Common Shares have been reserved for grant under the ESOP, of which 30,508 have been issued as at December 31, 2020 (February 9, 2021 – 68,089).

Off Balance Sheet Arrangements

During the six month period ended December 31, 2020 we have entered into foreign exchange forward contracts in order to minimize our exposure to certain foreign exchange rate risks. These contracts have been designated as cash flow hedges. The maturity dates of these instruments range from January 2021 to August 2021. As at December 31, 2020, the net unrealized gain on these forward contracts was $590,038 (June 30, 2020 – $nil). Unrealized gains were recorded in trade and other receivables and other comprehensive income (“OCI”). As at December 31, 2020, the Company estimates that 100% of net unrealized gains/losses on these forward contracts will be reclassified into income (loss) within the next twelve months.

We have no other off-balance sheet arrangements, other than variable payments related to operating leases that have, or are likely to have, a current or future material effect on our consolidated financial position or financial performance. From time to time, we may be contingently liable with respect to litigation and claims that arise in the normal course of operations.

Subsequent Events

Employee Share Ownership Plan

On January 28, 2021, 37,581 Common Shares were issued pursuant to the Employee Share Ownership Plan.

Quarterly dividend

On January 20, 2021, we declared a quarterly dividend of CAD$0.08 per share on our Common Shares, payable in cash on February 26, 2021 to shareholders of record at the close of business on February 12, 2021.

Quarterly Operating Data


(in USD millions except share and per share data)	Q2 F2021		Q1 F2021		Q4 F2020		Q3 F2020		Q2 F2020		Q1 F2020		Q4 F2019		Q3 F2019
Total ARR⁽¹⁾		117.5		111.7		108.3		101.4		100.3		99.1		98.0		95.2
Revenue⁽²⁾		29.9		28.5		27.2		26.1		25.8		25.7		25.3		24.9
Net income⁽³⁾		1.9		2.6		2.2		2.3		2.7		3.5		2.0		2.5
Basic income per share		0.04		0.06		0.05		0.05		0.06		0.08		0.05		0.06
Diluted income per share		0.04		0.06		0.05		0.05		0.06		0.08		0.05		0.06
Adjusted EBITDA⁽⁴⁾		8.0		8.1		8.0		6.1		6.2		7.1		4.9		5.8
Cash from Operating Activities⁽⁵⁾		13.4		14.7		11.6		3.7		2.2		7.5		3.5		0.9
Dividends paid		3.0		2.5		2.5		2.5		2.5		2.5		2.5		2.5
Repurchases of Common Shares		0.0		0.0		0.0		0.0		0.0		0.0		0.0		0.0
Number of Common Shares outstanding		49.2		42.7		42.5		42.5		42.3		41.8		41.6		41.6

NOTES:

(1)	Total ARR has increased as a result of Net Dollar Retention and New Logo ARR.

(2)	Our revenues have increased on a quarterly basis as a result of historical increases in Total ARR, which we believe is a leading indicator for future revenue growth.

(3)	Net income has remained stable throughout the periods presented, and results from improved revenue, increased operating income, and reflecting the impact of changes in income tax expense.

(4)	Please refer to the “Non-IFRS Measures and Key Metrics” section of this MD&A for a description of Adjusted EBITDA. Adjusted EBITDA has improved over the periods presented as a result of improved revenues and stable, or decreased, Adjusted Operating Expenses.

(5)	Cash from Operating Activities has increased in F2021 and throughout F2020 as compared to F2019 primarily as a result of increased Billings.

Critical Accounting Policies and Estimates

Management considers the Company’s accounting for revenue, contract acquisition assets, and deferred income taxes to be critical accounting policies. An understanding of the accounting policies for these items is important for meaningful analysis of Absolute’s business.

As of the date of this MD&A, the impacts of the COVID-19 pandemic continue to unfold. As a result, many of our estimates and assumptions require increased judgment and carry a higher degree of variability and volatility. As events continue to evolve and additional information becomes available, our estimates may change materially in future periods. See “Risks and Uncertainties” below.

Revenue

We operate a cloud-based service, which leverages patented embedded self-healing Persistence technology residing on a customer’s endpoint computing devices. The service allows a client to maintain visibility and control over its endpoints, and includes features such as reporting and analytics, geotechnology, risk assessment, risk response, and endpoint investigation and recovery. We provide access to the service to our clients on a subscription basis.

We principally derive our revenues from two sources: subscription revenues, which are comprised of subscription fees from customers accessing the Company’s enterprise cloud computing services (collectively, “Cloud Services”); and related professional services such as project implementation and other

short-term consulting services, in addition to longer-term services such as device lifecycle and technical account management services. Cloud Services revenue subscriptions are typically for terms ranging between one and five years. Other revenue consists primarily of ancillary business lines such as our consumer and digital subscriber management products.

Revenue is recognized upon transfer of control of promised products and services to customers in an amount that reflects the consideration we expect to receive in exchange for those products or services. If the consideration promised in a contract includes a variable amount, for example, contingent fees or service level penalties, we include an estimate of the amount we expect to receive for the total transaction price if it is probable that a significant reversal of cumulative revenue recognized will not occur.

The Company determines the amount of revenue to be recognized through application of the following steps:

•

Identification of the contract, or contracts with a customer;

•

Identification of the performance obligations in the contract;

•

Determination of the transaction price;

•

Allocation of the transaction price to the performance obligations in the contract; and

•

Recognition of revenue when or as the Company satisfies the performance obligations.

We obtain the majority of our customer arrangements through our PC OEM and reseller partners, most of which are based in North America. All revenues are recorded at the net amount received from the reseller, provided that all significant contractual obligations have been satisfied. For direct sales, revenues are recorded at the amount received from the end customer.

Our subscription service arrangements are typically non-cancelable and typically do not contain refund-type provisions.

(a)

Subscription Revenues

Subscription revenues are comprised of fees that provide customers with access to Cloud Services, software licenses and related support and updates during the term of the arrangement.

Cloud Services arrangements allow customers to use our hosted software without taking possession of the software. Revenue is generally recognized ratably over the contract term.

We typically invoice our reseller partners upon execution of the contract and fulfillment of services to the end customer. We typically execute a new contract for subsequent renewals or follow on orders. Amounts that have been invoiced are recorded in accounts receivable and in deferred revenue.

(b)

Professional Services and Other Revenues

Our professional services contracts are generally on either a fixed fee or subscription basis. These revenues are recognized on a proportional performance basis for fixed price contracts, and ratably over the contract term for subscription managed professional services contracts.

Revenues for our consumer products are generally recognized on a subscription fee basis as described above under “Subscription and Support Revenues”. Revenues for our digital subscriber management products are typically recognized in arrears pursuant to the terms of those arrangements.

Significant Judgments—Contracts with Multiple Performance Obligations

We enter into contracts with our customers that may include promises to transfer multiple Cloud Services and professional services. A performance obligation is a commitment in a contract with a customer to transfer products or services that are distinct. Determining whether products and services are distinct performance obligations that should be accounted for separately or combined as one unit of accounting may require significant judgment.

Cloud Services are distinct as such services are often sold separately. In determining whether professional services are distinct, we consider the following factors for each type of professional services agreement: the availability of the services from other vendors; the nature of the professional services; the timing of when the professional services contract was signed in comparison to the start date of any related Cloud Services; and the contractual dependence of the professional services on the Cloud Services.

We allocate the transaction price to each distinct performance obligation on a relative standalone selling price (“SSP”) basis. The SSP is the price at which we would sell a promised product or service separately to a customer. Judgment is required to determine the SSP for each distinct performance obligation.

We determine SSP by considering its overall pricing objectives and market conditions. Significant pricing practices taken into consideration include the Company’s discounting practices, the size and volume of the Company’s transactions, the customer demographic, the geographic area where services are sold, price lists, its go-to-market strategy, historical sales and contract prices. As our go-to-market strategies evolve, the Company may modify its pricing practices in the future, which could result in changes to SSP.

In certain cases, we are able to establish SSP based on observable prices of products or services sold separately in comparable circumstances to similar customers. The Company generally uses a range of SSP when it has observable prices.

If SSP is not directly observable, for example when pricing is highly variable, the Company uses a range of SSP. The Company determines the SSP range using information that may include market conditions or other observable inputs. The Company may have more than one SSP for individual products and services due to the stratification of those products and services by customer size, geography, and the other factors noted above.

Contract Acquisition Assets

Incremental costs of obtaining sales contracts are capitalized and amortized. These costs are presented as separate current and non-current assets in the consolidated statement of financial position. Costs incurred to acquire new customer contracts are amortized over the estimated period of benefit, including renewal periods, unless additional costs are anticipated to be incurred to obtain renewal contracts and those costs are commensurate with the costs incurred to obtain the contract originally.

The capitalized amounts consist primarily of sales commissions paid to the Company’s direct and indirect sales force. Capitalized amounts also include: amounts paid to employees other than the sales force who earn incentive payouts under annual compensation plans that are tied to the value of contracts acquired; the associated payroll taxes associated with the payments to the Company’s employees; and to a lesser extent, costs incurred under a branding agreement with a third party, and success fees paid to partners in emerging markets where the Company has a limited presence.

As noted above, contract acquisition assets are amortized on a straight-line basis commensurate with the average term of the contracts acquired related to the payments made. The capitalized amounts are recoverable through future revenue streams under all non-cancelable customer contracts. The Company

periodically evaluates whether there have been any changes in its business, the market conditions in which it operates, or other events which would indicate that its amortization period should be changed or if there are potential indicators of impairment.

Amortization of contract acquisition assets is included in sales and marketing expense in the consolidated statement of operations.

Deferred Income Taxes

The Company has recognized deferred tax assets on its Statement of Financial Position. Each reporting period, management assesses the likelihood of realizing deferred tax assets. Where management considers that it is more likely than not that some portion or all of the future tax assets will be realized, the estimated realizable value of the future tax asset is recognized on the statement of financial position. The net income or loss after income taxes can vary widely in periods where tax assets are recognized and such variances could result from a material write-down or increase in the estimated value of the Company’s deferred tax assets.

Derivative financial instruments and hedge accounting

The Company enters into derivative financial instruments such as foreign exchange forward contracts to manage its exposure to foreign exchange rate risks. The Company does not use derivative financial instruments for speculative purposes.

Derivatives are recognized initially at fair value at the date a derivative contract is entered into and are subsequently measured to their fair value at each reporting date. The Company records all derivative instruments at fair value on the consolidated statements of financial position. The fair value of these instruments is calculated based on notional and exercise values, transaction rates, market quoted currency spot rates and forward rates and therefore fall into Level II of the fair value hierarchy.

The Company designates foreign exchange forward contracts as hedging instruments. Hedges of foreign exchange risk are accounted for as cash flow hedges.

For derivative instruments designated as cash flow hedges, the entire change in the value of the hedging instrument included in the assessment of hedge effectiveness is initially reported as a component of other comprehensive income (“OCI”), net of tax, and subsequently reclassified into income in the same period or periods in which the hedged item affects income.

At the inception of the hedge relationship, the Company documents the relationship between the hedging instrument and the hedged item, along with its risk management objectives and its strategy for undertaking various hedge transactions. Furthermore, at the inception of the hedge and on an ongoing basis, the Company documents whether the hedging instrument is effective in offsetting changes in fair value or cash flows of the hedged item attributable to the hedged risk. This documentation includes: identification of the specific foreign currency asset, liability or forecasted transaction being hedged; the nature of the risk being hedged; the hedge objective; and the method of assessing hedge effectiveness. If an anticipated transaction is deemed no longer likely to occur, the corresponding derivative instrument is de-designated as a hedge and any associated unrealized gains and losses in OCI are recognized in income at that time.

The Company designates the full change in the fair value of a foreign exchange forward contract (i.e. including the forward elements) as the hedging instrument for all of its hedging relationships involving forward contracts.

For any derivative instruments that do not meet the requirements for hedge accounting, or for which hedge accounting is not elected, the changes in fair value of the instruments are recognized in income in the current period and will generally offset the changes in the U.S. dollar value of the associated asset, liability or forecasted transaction.

Financial Instruments

Foreign exchange

We enter into foreign exchange forward contracts to minimize our exposure to foreign exchange rate risks. These contracts have been designated as cash flow hedges. The maturity dates of these instruments range from January 2021 to August 2021. As at December 31, 2020, the net unrealized gain on these forward contracts was $590,038 (June 30, 2020 – $nil). Unrealized gains were recorded in trade and other receivables and other comprehensive income (“OCI”). As at December 31, 2020, the Company estimates that 100% of net unrealized gains/losses on these forward contracts will be reclassified into income (loss) within the next 12 months.

For the three and six months ended December 31, 2020, a gain of $559,811 and $590,038 respectively relating to the effective portion was recognized in OCI and there was nil reclassified from OCI into income relating to the ineffective portion.

Credit risk

We are exposed to credit risk on derivative financial instruments arising from the potential for counterparties to default on their contractual obligations. We mitigate this risk by limiting counterparties to highly rated financial institutions and by continuously monitoring their creditworthiness. Our exposure to credit loss and market risk will vary over time as a function of currency exchange rates. We measure our counterparty credit exposure as a percentage of the total fair value of the applicable derivative instruments. Where the net fair value of derivative instruments with any counterparty is negative, we deem the credit exposure to that counterparty to be $nil. As at December 31, 2020, we had a credit risk exposure to counterparties with outstanding or unsettled foreign exchange derivative instruments of $590,038 on a notional amount of $14,700,000 relating to derivative assets (June 30, 2020 – $nil).

New Accounting Pronouncements

Certain pronouncements have been issued by the International Accounting Standards Board that are issued but not yet effective. There are currently no such pronouncements that are expected to have a significant impact on the Company’s consolidated financial statements upon adoption.

Evaluation of Disclosure Controls and Internal Controls over Financial Reporting

Disclosure controls and procedures

The Company has disclosure controls and procedures in place that are designed to provide reasonable assurance that material information relating to Absolute is disclosed on a timely basis. Management has reviewed the Company’s disclosure controls and concluded that they were effective during the reporting period.

The Company’s Chief Executive Officer (“CEO”) and the Chief Financial Officer (“CFO”) have evaluated the effectiveness of the Company’s disclosure controls and procedures related to the preparation of Management’s Discussion and Analysis and the consolidated financial statements. They have concluded that the Company’s disclosure controls and procedures were effective, at a reasonable assurance level, to ensure that material information relating to the Company and its consolidated subsidiaries would be made known to them by others within those entities, particularly during the period in which this MD&A and the associated interim consolidated financial statements were being prepared.

Internal control over financial reporting

The Company’s management, with the participation of its CEO and CFO, are also responsible for establishing and maintaining adequate internal control over financial reporting to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS. Under the supervision of the CEO and CFO, the Company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with IFRS.

There have been no changes in the Company’s disclosure controls or internal control over financial reporting during the three months ended December 31, 2020 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. The Company’s CEO and CFO will certify Absolute’s Q2 F2021 filings with the regulatory authorities.

Risks and Uncertainties

This section describes the principal risks that could have a material and adverse effect on the Company’s business, products, reputation, financial condition, stock price, operating results, and/or prospects. In addition to the risks outlined in this MD&A, there may be other risks and uncertainties that are not known to the Company or that the Company currently believes are not material, but which may also have a material adverse effect on the Company’s business, products, reputation, financial condition, stock price, operating results, and/or prospects. In addition to the other information set forth elsewhere in this MD&A, in the AIF, and in the Company’s other public disclosure filings, current and prospective investors should carefully review the risk factors set forth below. Our discussion in this section is qualified in its entirety by the cautions regarding forward-looking statements at the beginning of this MD&A.

The COVID-19 pandemic could negatively affect our business, operations, future financial performance and the market price of our Common Shares.

The continuing global health, social, political and economic implications of the COVID-19 pandemic are highly unpredictable and could have significant impacts on our business, operations, future financial performance, and the market price of our Common Shares. As a result of the scale of the pandemic and the speed at which the global community has been impacted, our current and future financial performance, including our quarterly and annual revenue growth rates and expenses as a percentage of our revenues, may differ significantly from our historical performance, and our future operating results may fall below expectations. The impacts of the pandemic on our business, operations, and future financial performance could include, but are not limited to:

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A significant decline in revenue as customer spending slows due to an economic downturn and/or as customer demand otherwise decreases. This may result in customers or potential customers electing not to purchase or reducing their purchase of our service or purchasing more inexpensive devices which do not have our technology embedded. This decline in revenue could persist through and beyond a recessionary period.

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Adverse impacts to our growth rates, cash flows, and margins—particularly if expenses do not decrease across our business at the same pace as revenue declines. Many of our expenses are less variable in nature and may not correlate to changes in revenues, such as depreciation and other costs associated with our hosting operations and office facilities, customer support, and other infrastructure maintenance costs. As such, we may not be able to decrease them significantly in the short-term, or we may choose not to significantly reduce them in an effort to remain focused on our long-term outlook and opportunities.

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Major disruptions to the respective businesses of our principal PC OEM and other partners which could have a material impact on our business, operations, prospects and revenues, and accordingly our financial position.

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Significant supply chain constraints such that we cannot procure the servers and other technology infrastructure needed to deliver our services to our customers. Supply chain constraints could also affect our ability to sell via our PC OEM and other partners in conjunction with their hardware sales. Increased pricing of these components could also affect infrastructure costs to deliver our services.

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The COVID-19 pandemic has caused organizations globally to rapidly and broadly shift to remote working, which has resulted in certain inherent productivity, connectivity, and oversight challenges. Continued and/or new governmental lockdowns, restrictions, or regulations arising from the COVID-19 pandemic which restrict the movement of people in the jurisdictions in which we operate could

significantly impact the ability of our employees, partners, customers, and vendors to work productively. Governmental restrictions have been globally inconsistent and it is not clear if and when a return to worksite locations or travel will be permitted or for how long or what restrictions will be in place in these jurisdictions at any given time. The extent and/or duration of ongoing workforce restrictions and limitations could impact our ability to enhance, develop, and support existing products and services, hold sales, marketing, and employee events, and generate new sales leads, among others. In addition, the changed environment under which we are operating could have an impact on our internal controls over financial reporting as well as our ability to meet a number of our compliance requirements in a timely manner.

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Ongoing significant foreign exchange volatility which could materially impact our revenues that are denominated in foreign currencies and our ability to hedge our foreign exchange exposure. Additionally, volatility in debt and equity markets could affect the values of our debt and equity holdings and the realized gains or losses on the disposition of those holdings.

If organizations do not adopt cloud-based SaaS-delivered endpoint security products, our ability to grow our business and results of operations may be harmed.

We believe our future success will depend on the growth, if any, in the market for cloud-based SaaS-delivered information security products. The use of SaaS solutions to manage and automate security and IT operations is rapidly evolving. As such, it is difficult to predict its potential growth, if any, customer adoption and retention rates, customer demand for our solutions, or the success of existing competitive products. Any expansion in our market depends on a number of factors, including the cost, performance, and perceived value associated with our products and those of our competitors. If our solutions do not achieve widespread adoption or there is a reduction in demand for our products due to a lack of customer acceptance, technological challenges, competing products, privacy concerns, decreases in corporate spending, weakening economic conditions or otherwise, it could result in early terminations, reduced customer retention rates, or decreased revenue, any of which would harm our business, results of operations, and financial results. We do not know whether the trend in adoption of cloud- based SaaS-delivered endpoint security products we have experienced in the past will continue in the future.

Furthermore, if we or other SaaS security providers experience security incidents, loss or disclosure of customer data, disruptions in delivery, or other problems, the market for SaaS products as a whole, including our information security products, will be negatively affected. You should consider our business and prospects in light of the risks and difficulties we encounter in this evolving market.

Our estimates of market opportunity and market and revenue growth may prove to be inaccurate and even if the market in which we compete achieves the estimated growth, our business could fail to grow at similar rates, if at all.

We focus on four key performance metrics: revenue, Adjusted EBITDA, the change in Total ARR (resulting from Net Dollar Retention and New Logo ARR) and cash from operating activities. Due to, among other things, the evolving SaaS business model and the unpredictability of our emerging and competitive category of information security products, we may not be able to accurately forecast the rate of adoption of our services and hence our revenue growth and profitability. We base our current and future expense levels and our investment plans on estimates of future revenue growth. We may not be able to adjust our spending quickly enough if the rate of new or renewed subscriptions falls short of our expectations. In addition, the significant competition we face in the sales of our products and services and general economic and business conditions (including foreign exchange rates) can put pressure on us to change our prices. If our competitors offer deep discounts on certain products or services or develop products that the marketplace considers

more valuable, we may need to lower our prices or offer other favorable terms in order to compete successfully. Any such changes may reduce margins and could adversely affect operating results. Also, our operating results may fluctuate significantly on a quarterly basis. In addition, we expect that COVID-19 and its effects on the global economy and on our current and prospective customers could impact our revenue growth rate. Accordingly, period-to-period comparisons of our operating results may not necessarily be a meaningful indicator of future performance.

Our business model and future growth are substantially dependent on the success of our relationships with our PC OEM partners.

Our Persistence technology and product and sales strategies are heavily dependent on our ability to maintain our embedded basic input/output system(BIOS)/unified extensible firmware interface (UEFI) and firmware positions with our PC OEM partners. In addition, we generate a substantial portion of our revenue through PC OEM channels and other distribution partners. Our solutions (including our Persistence technology) may compete with other solutions developed and/or marketed by a PC OEM or other distribution partner or otherwise lose favour with these partners. Our PC OEM and other distribution partners may also cease or reduce marketing our solutions with limited or no notice and with little or no penalty. Our PC OEM and other distribution partners generally have no obligation to maintain or renew their contractual arrangements with us and generally may terminate such arrangements with limited notice and/or transition periods. New PC OEM and distribution partners require extensive training and could take many months or more to achieve productivity. If any of our PC OEM partners elect to not embed, or reduce the prevalence of, our Persistence technology or favour competing products, we may have to change our product strategies, which could have a material adverse effect on our business, operating results and financial condition. In addition, if any of our PC OEM or other distribution partners cease or reduce marketing our solutions and/or experience reductions in sales of our solutions and/or we fail to manage these important sales and distribution channels effectively, we may have to change our sales strategies, which could have a material adverse effect on our business, operating results and financial condition.

Current and future global economic and political volatility and uncertainty may negatively impact our financial performance and results of operations as well as our ability to predict future spending requirements and growth, if any.

Current and future global economic, political and social conditions remain volatile and uncertain, especially due to the COVID-19 pandemic. As a result, it is difficult to estimate the level of growth or contraction for the global economy as a whole. It is even more difficult to estimate economic growth or contraction in various sectors and regions, including the markets in which we operate. Because all components of our budgeting and forecasting are dependent upon estimates of growth or contraction in the markets we serve and the demand for our products and services, the prevailing economic uncertainties render estimates of future income and expenditures very difficult to make. Adverse changes may occur as a result of the impact of the COVID-19 pandemic or the continued prevalence of public health crises, wavering consumer confidence, unemployment, declines in stock markets, contraction of credit availability, declines in real estate values, stagnant economic conditions, increasing nationalism and protectionism, trade tensions and tariff uncertainty, political deadlock, social unrest or other factors affecting economic conditions generally. These changes may negatively affect the sales of our services and, therefore, may impact our ability to meet our targets for Total ARR, revenue, Adjusted EBITDA and cash from operating activities.

If we are unable to attract new customers, our future results of operations could be harmed.

To expand our customer base, we need to convince potential customers to allocate a portion of their discretionary budgets to purchase our solutions. Our sales efforts often involve educating our prospective

customers about the uses and benefits of our solutions. Organizations that use other forms of network and/or endpoint security products for their IT security may be hesitant to purchase our solutions if they believe that these products are more cost effective, provide substantially the same functionality as our solutions or provide a level of information technology security that is sufficient to meet their needs. We may have difficulty convincing prospective customers of the value of adopting our solution. Even if we are successful in convincing prospective customers that a persistent solution like ours is critical to protect against cyberattacks, they may not decide to purchase our solutions for a variety of reasons, some of which are out of our control. For example, any deterioration in general economic conditions, including a downturn due to the COVID-19 pandemic, may cause our prospective customers to cut their overall security and information technology operations spending, and such cuts may fall disproportionately on cloud-base security solutions like ours. Economic weakness, customer financial difficulties, and constrained spending on security and information technology operations may result in decreased revenue, reduced sales, lengthened sales cycles, increased churn, and lower demand for our products and adversely affect our results of operations and financial condition. If organizations do not continue to adopt our solutions, our sales will not grow as quickly as anticipated, or at all, and our business, results of operations and financial condition would be harmed.

If our customers do not renew their subscriptions for our solutions, our future results of operations could be harmed.

In order for us to maintain or improve our financial and operational results, it is important that our existing customers renew their subscriptions for our solutions when existing contract terms expire and that we expand our relationships with our existing customers by selling and deploying them more endpoints in their environments, selling additional types of services and/or moving these customers to higher tiers of our solutions. Our customers typically have no obligation to renew their subscription for our solutions after the expiration of their contractual subscription period and, in the normal course of business, some customers have elected not to renew. In addition, our customers may seek to renew for shorter contract subscription lengths, reduce the number of endpoints deployed in their environment or downgrade to lower tiers of our solutions. Our customer retention and expansion may decline or fluctuate as a result of a number of factors, including our customers’ satisfaction with our services, our pricing, customer security and networking issues and requirements, our customers’ spending levels, decreases in the number of endpoints to which our customers deploy our solutions, mergers and acquisitions involving our customers, industry developments, competition and general economic conditions. If our efforts to maintain and expand our relationships with our existing customers are not successful, our business, results of operations and financial condition may materially suffer.

If we do not adapt our technology to be compatible to new operating systems, our business, operating results and financial condition could be harmed.

We have designed the majority of our services to operate on certain generations of Microsoft Windows and other operating systems. The development by Microsoft Corporation of new versions of Windows and/or upgrades or updates to Windows or other operating systems and/or the market adoption of these or other operating systems developed by other vendors may have an adverse effect on our business if we are not able to adapt our technology to be compatible with these new operating systems. In addition, end users may want to deploy our products and services in computing environments with operating systems, software and/or hardware different than those in which we test our products and services before release or where our products are not compatible. The costs incurred in analyzing, correcting or eliminating any material defects or errors in our software may be substantial. Furthermore, we may not be able to correct any defects or errors or promptly address any vulnerabilities or compatibility issues with our products which could have

a material adverse effect on our business, operating results and financial condition.

We may be unable to maintain or grow our sales in the educational vertical, which would harm our business, operating results and financial condition.

We have historically generated a significant portion of our revenue from the education vertical, specifically K-12 organizations. In certain quarters prior to Q4 F2020, we saw volatility and declines in the Total ARR in the education vertical, which we believe reflect a secular trend specific to this sector. While customers in the enterprise and government sectors generally associate the value of our solutions with the protection of information, many of our customers within the education sector have historically associated the value of our solutions with the protection and recovery of devices. We continue to experience a shifting trend in the mix of devices that customers in the education vertical are purchasing, away from higher cost devices to lower cost, cloud-based devices.

The COVID-19 pandemic caused an increasing number of schools to procure and seek to secure mobile computing systems for students, teachers and administrators in order to stand up and secure distance and hybrid learning programs. This led to increased demand for our solutions and increased revenues from our education vertical. However, there is no assurance that this vertical trend will continue into coming quarters or permanently, or that we will continue to see increased demand and increased revenue from the education vertical as a result of the impacts of the COVID-19 pandemic.

Furthermore, we believe that our current and intended future investments in our Intelligence initiative will result in product enhancements that will assist educators in gaining valuable insights into the value of their technology investments as well as assist them in managing their diverse technology landscapes. However, these enhancements are still being developed and gradually introduced to the market, and therefore their continuing impact on our education business remains to be proven. As a result, we expect results in the education vertical to continue to fluctuate in the near term. A continued decline of sales in our education vertical could materially affect our business and financial condition, especially if such revenue loss is not adequately offset by revenue growth in our other verticals.

Our business depends, in part, on sales to government organizations, and significant changes in the contracting or fiscal policies of such government organizations could have a negative effect on our business and results of operations.

Our future growth depends, in part, on increasing sales to government organizations in the United States and elsewhere. Demand from government organizations is often unpredictable, can be subject to budgetary uncertainty, can involve additional technical and/or security requirements, and typically involves long sales cycles. Selling to governmental agencies can be highly competitive, expensive and time-consuming, often requiring significant upfront time and expense without any assurance that such efforts will generate a sale. Governments may also impose certification requirements applicable to our products, which may change from time to time, resulting in additional compliance costs. Government demand and payment may be impacted by budgetary cycles and funding authorizations, resulting in funding reductions and delays. Governments also routinely investigate and audit government contractors’ administrative processes, and unfavourable audit findings could result in termination of sales contracts or cessation of sales. There can be no assurance that our investments in the government sector will be successful or that we will be able to maintain or grow our revenue from the government sector. Government sales are subject to a number of challenges and risks that may harm our business, financial condition and results of operations.

If we are unable to keep pace with technological and marketplace change and trends, including market adoption of certain mobile computers and other mobile devices, our business, operating results and financial condition would be harmed.

The market for our products continues to evolve and continued growth and demand for, and acceptance of, these products remains uncertain. In addition, other emerging technology and products may impact the viability of the market for our products. Our continued success will depend upon our ability to keep pace with technological and marketplace change and to introduce, on a timely and cost-effective basis, new and enhanced products that satisfy changing customer requirements and achieve market acceptance. There can be no assurance that we will be able to respond effectively to changes in technology or customer demands. Moreover, there can be no assurance that our competitors or current partners (including PC OEMs) will not develop competitive products or that any such products will not have an adverse effect upon our business, financial condition or results of operations.

Our products and technologies are not available for all existing and emerging mobile computers and other mobile devices that are or will be available in the marketplace, and some features of our products are offered for only some devices. For example, our Persistence technology is not currently embedded in Apple devices or on Google Chromebooks. We target our product development efforts towards those devices and operating systems that we believe have the best strategic value for us. We may not be successful in identifying future trends in the marketplace for these devices on a timely basis, or in creating or adapting our products and features for enough of the devices that are available. If the present decline in personal computer and tablet sales continues, or if our customers replace their existing mobile computers and mobile devices with other devices for which we have not developed products, our revenue may decline and our results from operations may be adversely impacted.

We may not timely and cost-effectively scale and adapt our existing technology to meet our customers’ performance and other requirements.

Our future growth is dependent upon our ability to continue to meet the needs of new customers and the expanding needs of our existing customers as their use of our solutions grow. In order to meet the performance and other requirements of our customers, we intend to continue to make significant investments to increase capacity and to develop and implement new technologies in our products and cloud infrastructure operations. These technologies are often advanced, complex, new and untested, and we may not be successful in developing or implementing these technologies in a cost-effective manner or at all. In addition, it takes a significant amount of time to plan, develop and test improvements to our technologies and infrastructure, and we may not be able to accurately forecast demand or predict the results we will realize from such improvements. To the extent that we do not effectively scale our operations to meet the needs of our growing customer base and to maintain performance as our customers expand their use of our solutions, we may not be able to grow as quickly as we anticipate, our customers may reduce or cancel use of our solutions and we may be unable to compete as effectively and our business and results of operations may be harmed.

If our solutions fail or are perceived to fail to detect or prevent incidents or have or are perceived to have errors, vulnerabilities or defects, our brand and reputation would be harmed, which would negatively affect our business and results of operations.

The software technology enabling our software services is complex and, despite testing prior to their release, the related application software may contain errors, vulnerabilities or defects, especially when upgrades or new versions are released. Any errors or vulnerabilities that are discovered after commercial release could result in loss of revenues or delay in market acceptance, diversion of development resources, damage to our

reputation, increased service and warranty costs, liability claims and our end-customers’ unwillingness to buy products from us. In addition, it is possible that our product may become the subject of a third-party attack or disruption, whether malicious or otherwise. This could detrimentally affect the persistence of our technology, which could have a material adverse effect on our business.

Internal or external security incidents or breaches could expose us to a risk of loss of sensitive and confidential information, which could result in litigation or liability and negatively impact our reputation, business, results of operations and financial condition.

Our service involves the storage, processing and transmission of significant amounts of data which may include certain personally identifiable information and protected health data depending on applicable legal definitions and parameters in different jurisdictions. Internal or external security incidents or breaches could expose us to a risk of loss of this information, litigation and possible liability. If our data security measures are inadequate or interfered with or breached as a result of third-party action, employee error, malfeasance or otherwise, during the transfer of data to additional data centers or at any time, and, as a result, someone obtains unauthorized access to our data or our customers’, partners’ or employees’ data, our reputation could be damaged, our business may suffer and we could incur significant liability. We remain potentially vulnerable to additional known or unknown threats that elude our detection, investigation and prevention efforts, and we may be unable to anticipate new attack techniques or may not have time to implement adequate preventative measures, including recommended upgrades, patches or improvements for individuals or entities utilizing unlicensed or outdated versions of our product or agent. If an actual or perceived breach of our security occurs, the market perception of the effectiveness of our security measures could be harmed and we could lose sales, channel partners and existing and potential customers. In addition, our customers may authorize third-party service providers to access their customer data. Because the control of these third-party service providers is undertaken by our customers, we cannot ensure the complete integrity or security of such transmissions or processing.

As a cybersecurity provider, we have been, and expect to continue to be, a target of cyberattacks. If our internal networks, systems, or data are or are perceived to have been compromised, our reputation may be damaged and our financial results may be negatively affected.

Increasingly, organizations are subject to a wide variety of attacks on their networks. In addition to traditional computer “hackers,” malicious code (such as viruses and worms), employee theft or misuse, denial of service attacks, ransomware, malware and sophisticated government and government-supported actors now engage in incidents and attacks (including advanced persistent threat intrusions), and add to the risks to our internal networks and the information they store, manage and process. It is virtually impossible for us to entirely mitigate these risks (especially as it relates to unlicensed or outdated versions of our product or agent). Any such security incident or breach could compromise our networks, creating system disruptions or slowdowns and exploiting security vulnerabilities of our products, and the information stored on our networks could be accessed, publicly disclosed, lost, or stolen, which could subject us to liability and cause us financial harm. These breaches, or any perceived breach, may also result in damage to our reputation, negative publicity (through research reports or otherwise), loss of partners, end-customers and sales, increased costs to remedy any problem, and costly litigation and may result in our business, operating results and financial condition being materially adversely affected.

We are subject to various data protection, security and privacy laws and regulations, which may result in increased compliance costs for our products. Our failure, or that of our partners or customers, to comply with any such laws or regulations may harm our reputation and negatively affect our business, results of operations and financial condition.

Our business and certain data that we collect, analyze, store and process is subject to laws, regulations, and industry standards concerning privacy, data protection, information security, and electronic and telecommunications services in the United States, Canada, the European Union and other jurisdictions in which we operate or may operate (collectively, “Privacy and Data Protection Laws”). The U.S. federal government, and various U.S. state governments, have adopted or proposed limitations on the collection, distribution, use, and storage of certain categories of information, such as personally identifiable information of individuals, personal health information, and other sector-specific types of data, including the Federal Trade Commission, the Electronic Communication Privacy Act, the Computer Fraud and Abuse Act, the Health Insurance Portability and Accountability Act, the Gramm Leach Bliley Act, and the California Consumer Privacy Act of 2018. Laws and regulations outside the United States, and particularly in Europe, such as the European General Data Protection Regulation, often are more restrictive than those in the United States. Such laws and regulations may require companies to implement privacy and security policies, permit individuals to access, correct, and delete personal information stored or maintained by such companies, inform individuals of security breaches that affect their personal information, and, in some cases, obtain individuals’ consent to use personally identifiable information for certain purposes. In addition, some governments require that any information of certain categories collected in a country not be disseminated outside of that country. We also may find it necessary or desirable to join industry or other self-regulatory bodies or other information security or data protection-related organizations that require compliance with their rules pertaining to information security and data protection. We also may over time be bound by additional, more stringent contractual obligations relating to our actual or potential collection, use and/or disclosure of personal, financial, health, and other sensitive data.

We also expect that there will continue to be new Privacy and Data Protection Laws, and existing Privacy and Data Protection Laws may be interpreted in new manners in the future. We have already incurred certain expenses in establishing and maintaining our compliance with the obligations imposed by existing Privacy and Data Protection Laws, and new developments with respect to Privacy and Data Protection Laws could require us to modify our solutions, restrict our business operations or impair our ability to maintain and grow our customer base and increase our revenue. In the event a court or regulator determines that we have not complied with Privacy and Data Protection Laws, we may be subject to fines and public censure. The costs of compliance with, and other burdens imposed by, evolving Privacy and Data Protection Laws that are applicable to the businesses of our customers may also limit the use and adoption of our service and reduce overall demand for it.

These costs and outcomes could negatively affect our business, results of operations and financial condition.

If we do not effectively manage our future growth, including by effectively expanding and training new employees, our business and results of operations will be negatively affected.

We have remained focused on sales growth. This has resulted, at times, in increasing headcount and operational costs to generate and support this growing customer base, which has placed, and will continue to place, to the extent that we are able to sustain such growth, significant strain on our management, administrative, operational and financial infrastructure. We anticipate that further growth will be required to address increases in the customer base, further development of our products and expansion into new geographic areas, amongst other areas of our business and operations. Further growth will require us to continue to hire, train and manage new employees as needed. If new hires perform poorly, or if we are unsuccessful in hiring, training, managing and integrating new employees, or if we are not successful in retaining existing employees, our business may be harmed. In addition, we may look to expand our engineering and sales teams in an attempt to increase sales growth. Such sales growth may not match or exceed the increase in operating costs associated with hiring, training, managing and integrating of such employees, which could harm our business, results of operations and financial condition.

Our efforts to market and sell our products to larger enterprise customers will result in greater costs and may not be successful.

As we continue to direct more sales efforts at larger enterprise customers, we could face greater costs, less favourable commercial and contract terms and conditions, greater due diligence and technical scrutiny, longer sales cycles, less predictability in completing some sales and greater fluctuation in sales and cash flow in quarters where these large deals conclude. In this market segment, the customer’s decision to use our service or products may be an enterprise-wide decision and, if so, these types of sales may require us to provide increased product discounts, additional global support and professional services, increased service level availability, greater levels of education and training regarding the use and benefits of the service, as well as education regarding privacy and data protection laws and regulations to prospective customers with international operations. As a result of these factors, these sales opportunities may require us to devote greater sales support and professional services resources to individual customers, driving up costs and time required to complete sales and diverting sales and professional services resources to a smaller number of larger transactions. If we are not successful in selling to larger enterprise customers and incur additional costs in these marketing and selling efforts, our business, results of operations and financial condition could be harmed.

If we are not able to maintain and enhance our brand and our reputation as a provider of high-efficacy security solutions, our business, results of operations and financial condition may be harmed.

We believe that developing and maintaining awareness of our proprietary corporate and product brands in a cost-effective manner is critical to achieving widespread acceptance of our existing and future services and is an important element in attracting new customers. Further, we believe in the increased importance of brand recognition as competition in our market intensifies. Successful promotion of our brands will depend largely on the effectiveness of our marketing and communications efforts and on our ability to provide reliable secure and useful services at competitive prices. If we fail to successfully promote, maintain, and protect our brands, or incur substantial expenses in an unsuccessful attempt to promote and maintain our brands, we may fail to attract enough new customers or retain existing customers to the extent necessary to realize a sufficient return on brand-building efforts, which would harm our business, results of operations and financial condition. In addition, any negative publicity about us, including about the efficacy and reliability of our technologies, our product offerings, our professional services and the partners or customers we work with, even if inaccurate, could negatively affect our reputation and brand.

Our business may be impacted by the cyclical and seasonal nature of PC and other device purchases by our customers, which may result in fluctuation of our results of operations.

Our business may be impacted from time to time by the general cyclical and seasonal nature of personal computer and other device purchases by corporate, education and governmental entities. For instance, in the education sector, greater technology purchases tend to occur in the fourth quarter of our financial year, in line with school-year-end purchasing cycles. Other factors which may create cyclical fluctuations include the development and adoption of new operating system software, the expiry of leases on devices or the introduction of newer or more advanced devices, legal and regulatory requirements, and the timing of contract renewals between our partners and their own customers. Since some of our revenue from particular products and services are tied to the volume of shipments being processed, adverse fluctuations in the volume of global shipments may adversely affect our revenues. There can be no assurance that declines in shipment volumes in the United States or internationally will not have a material adverse effect on our business.

Competitive pricing pressure may reduce our gross profits and negatively affect our financial results.

If we are unable to maintain our current customer pricing due to competitive pressures or other factors, our margins will be reduced and our gross profits, business, results of operations, and financial condition would be harmed. The subscription prices for our products and services may decline for a variety of reasons, including competitive pricing pressures, discounts, anticipation of the introduction of new solutions by our competitors, or promotional programs offered by us or our competitors. Competitors with more diverse product and service offerings may reduce the price of products or subscriptions that compete with ours or may bundle them with other products and subscriptions, which could result in downward pressure on our customer pricing and reduce our gross profits.

We face intense competition and could lose market share to our competitors, which could negatively affect our business, financial condition, and results of operations.

It is possible that new competitors will enter the markets we operate in. Several potential competitors (including PC OEMs) are marketing or have announced the development of products and related patents that could be in direct competition with us. In addition, as we develop new products and services, we may begin competing against companies with whom we did not previously compete. Many of these competitors have greater financial, technical, marketing, sales and other resources, greater name recognition, longer operating histories and a larger base of customers than we do. They may be able to devote greater resources to the development, promotion and sale of services than we can and they may offer lower pricing than we do. Further, they may have greater resources for research and development of new technologies, the provision of customer support and the pursuit of acquisitions, or they may have other financial, technical or other resource advantages. Our larger competitors may have substantially broader and more diverse product and services offerings as well as routes to market, which allows them to leverage their relationships based on other products or incorporate functionality into existing products to gain business in a manner that discourages users from purchasing our solutions. Further, many competitors that specialize in providing protection from a single type of security threat may be able to deliver these targeted security products to the market quicker than we can or may convince organizations that these limited products meet their needs. Even if there is significant demand for cloud-based security solutions like ours, if our competitors include functionality that is, or is perceived to be, equivalent to or better than ours in legacy products that are already generally accepted as necessary components of an organization’s IT security architecture, we may have difficulty increasing the market penetration of our products. Furthermore, even if the functionality offered by other security and device management solutions providers is different and more limited than the functionality of our platform, organizations may elect to accept such limited functionality in lieu of adding

products from additional vendors like us. Further, conditions in our market could change rapidly and significantly as a result of technological advancements, partnering or acquisitions by our competitors or continuing market consolidation. Accordingly, competition could have a material adverse effect on our business, financial condition and results of operations.

Our future sales growth and success depends in part on our continued research and development efforts.

We believe that we must continue to dedicate a significant amount of resources to our research and development efforts to maintain and develop our solutions and maintain and enhance our competitive position. We recognize the costs associated with these research and development investments earlier than the anticipated benefits, and the return on these investments may be lower, or may develop more slowly, than we expect. If we spend significant resources on research and development and are unable to generate an adequate return on our investment, our business, financial condition and results of operations may be materially and adversely affected.

We rely on third-party hosting facilities and our own facilities to host and operate our service, and any disruption of or interference with our use of these facilities may negatively affect our ability to maintain the performance and reliability of our products, which could cause our business to suffer.

We currently serve our customers from facilities that include third-party hosting facilities located on the west coast of both Canada and the United States and certain cloud service providers. Damage to, or failure of, our and our vendors’ systems generally could result in interruptions in our service. Interruptions in our service may reduce our revenue, cause us to issue credits or pay penalties, cause customers to terminate their subscriptions and adversely affect our renewal rates and our ability to attract new customers. Our business will also be harmed if our customers and potential customers believe our service is unreliable. In addition, pandemics or other public health crises, acts of terrorism, and other political and economic unrest could cause disruptions in our and our vendors’ service reliability and in the economy.

As part of our current disaster recovery arrangements, redundant hardware is deployed where possible in all production customer environments. Production data is backed up onto encrypted media and taken offsite. The recovery procedures and encryption keys are held remotely by our employees, so that the systems can be restored in the event of a site-wide disaster. Despite these arrangements, there can be no assurance that they will prevent disruptions or interference of our service and operations. Other than contractual assurances and agreed to controls, we do not control the operation of any of these facilities and they are vulnerable to damage or interruption from earthquakes, floods, fires, power loss, pandemics or other public health crises, telecommunications failures and other events. They may also be subject to break-ins, sabotage, intentional acts of vandalism and similar misconduct. The occurrence of a natural disaster or an act of terrorism, a decision to close the facilities without adequate notice or other unanticipated problems at these facilities could result in lengthy interruptions in the delivery of our products and our services, which would negatively impact our business, results of operations and financial condition.

The success of our business depends in part on our ability to develop, protect and enforce our intellectual property rights.

Our revenue, cost of revenue, and expenses may suffer if we cannot continue to protect our intellectual property rights, or if third parties assert that we violated their intellectual property rights. We rely upon patent, copyright, trademark and trade secret laws in the United States and Canada and similar laws in other countries, and agreements with employees, customers, suppliers and other parties, to establish and maintain intellectual property rights in, amongst other items, our Persistence technology platform. The industry in which we compete may include new or existing entrants that own, or claim to own, intellectual property, and we have received, and may receive in the future, assertions and claims from third parties that

our products infringe on their patents or other intellectual property rights. Litigation has been and in the future may continue to be necessary to determine the scope, enforceability and validity of third-party proprietary rights or to establish our proprietary rights. Any of our direct or indirect intellectual property rights could be challenged, invalidated or circumvented, or such intellectual property rights may not be sufficient to permit us to take advantage of current market trends or otherwise to provide competitive advantages, which could result in costly or delayed product redesign efforts, discontinuance of certain product offerings or other competitive harm. Further, the laws of certain countries do not protect proprietary rights to the same extent as the laws of Canada or the United States. Therefore, in certain jurisdictions we may be unable to protect our proprietary technology adequately against unauthorized third-party copying or use, which could adversely affect our competitive position. Third parties also may claim that we or our customers or partners that we indemnify are infringing upon their intellectual property rights. These claims can be time consuming and costly to defend and divert management’s attention and resources away from the business.

In addition, our research and development activities and commercial success depend in part upon our ability to develop new or improved technologies and products and to successfully obtain patent or other proprietary or statutory protection for these technologies and products in Canada, the United States and other countries. We seek to patent concepts, components, protocols and other inventions that are considered to have commercial value or that will likely yield a technological advantage. We own rights to patented and patent pending technologies in the United States, Canada and other countries. We may not be able to develop new technology that is patentable, new patents may not be issued in connection with our pending applications, allowed claims may not be sufficient to protect our new technology, and patents may not be obtained by us in every jurisdiction where our products are sold. Furthermore, any current or future issued patents could be challenged, invalidated or circumvented and may not provide proprietary protection or a competitive advantage. New entrants to the field may have been issued patents, and may have filed patent applications or may obtain additional patents and proprietary rights, for technologies similar to those that we have made or may make in the future. Since publication or public awareness of new technologies often lags behind actual discoveries, we cannot be absolutely certain that we were the first to develop the technology covered by our pending patent applications or that we were the first to file patent applications for the technology. In addition, the disclosure in our new patent applications, particularly in respect of the utility of our claimed inventions, may not be sufficient to meet the statutory requirements for patentability in all cases. As a result, there can be no assurance that our new patent applications will result in enforceable patents, nor can the breadth of allowed claims in our patents, and their enforceability, be predicted. Even if our patents are held to be enforceable, others may be able to design around these patents or develop products similar to our products that are not within the scope of these patents.

Claims by others that we infringe their proprietary technology or other intellectual property rights could result in significant costs and substantially harm our business, financial condition, results of operations, and prospects.

Claims by others that we infringe their proprietary technology or other intellectual property rights could harm our business. A number of companies in our industry hold a large number of patents and also protect their copyright, trade secret and other intellectual property rights, and companies in the networking and security industry frequently enter into litigation based on allegations of patent infringement or other violations of intellectual property rights. As we face increasing competition and grow, the possibility of intellectual property rights claims against us also grows. In addition, to the extent we hire personnel from competitors, we may be subject to allegations that such personnel have divulged proprietary or other confidential information to us. From time to time, third parties may in the future assert claims of infringement of intellectual property rights against us.

Third parties may in the future also assert claims against our customers or PC OEM partners. As the number of products and competitors in the security and IT operations market increases and overlaps occur, claims of infringement, misappropriation, and other violations of intellectual property rights may increase. In addition, future litigation may involve non-practicing entities, companies or other patent owners who have no relevant product offerings or revenue and against whom our own patents may therefore provide little or no deterrence or protection. Any claim of intellectual property infringement by a third party, even a claim without merit, could cause us to incur substantial costs defending against such claim, could distract our management from our business and could require us to cease use of such intellectual property.

Additionally, our insurance may not cover intellectual property rights infringement claims that may be made. In the event that we fail to successfully defend ourselves against an infringement claim, a successful claimant could secure a judgment or otherwise require payment of legal fees, settlement payments, ongoing royalties or other costs or damages; or we may agree to a settlement that prevents us from offering certain services or features; or we may be required to obtain a license, which may not be available on reasonable terms, or at all, to use the relevant technology. If we are prevented from using certain technology or intellectual property, we may be required to develop alternative, non-infringing technology, which could require significant time, during which we could be unable to continue to offer our affected services or features, effort and expense and may ultimately not be successful.

Although third parties may offer a license to their technology or other intellectual property, the terms of any offered license may not be acceptable, and the failure to obtain a license or the costs associated with any license could cause our business, financial condition and results of operations to be negatively affected. If a third party does not offer us a license to its technology or other intellectual property on reasonable terms, or at all, we could be enjoined from continued use of such intellectual property. As a result, we may be required to develop alternative, non-infringing technology, which could require significant time, during which we could be unable to continue to offer our affected products, subscriptions or services, effort, and expense and may ultimately not be successful. Furthermore, a successful claimant could secure a judgment or we may agree to a settlement that prevents us from making, using or distributing certain products, providing certain subscriptions or performing certain services or that requires us to pay substantial damages, royalties or other fees. Any of these events could harm our business, financial condition and results of operations.

Some of our technology incorporates “open source” software, which could negatively affect our ability to sell our products and subject us to possible litigation.

Certain of our products and subscriptions contain third-party open source software components, and failure to comply with the terms of the underlying open source software licenses could restrict our ability to sell our products and subscriptions. The use and distribution of open source software may entail greater risks than the use of third-party commercial software, as open source licensors generally do not provide warranties or other contractual protections regarding infringement claims or the quality of the code. Many of the risks associated with use of open source software cannot be eliminated and could negatively affect our business. In addition, the wide availability of source code used in our solutions could expose us to security vulnerabilities.

Some open source licenses contain requirements that we make available source code for modifications or derivative works we create based upon the type of open source software we use. If we combine our proprietary software with open source software in a certain manner, we could, under certain open source licenses, be required to release the source code of our proprietary software to the public, including authorizing further modification and redistribution, or otherwise be limited in the licensing of our services, each of which could provide an advantage to our competitors or other entrants to the market, create security vulnerabilities in our solutions, require us to re-engineer all or a portion of our technologies, and could reduce or eliminate the value of our services. This would allow our competitors to create similar products with lower development effort and time and ultimately could result in a loss of sales for us.

The terms of many open source licenses have not been interpreted by U.S. and Canadian courts, and there is a risk that these licenses could be construed in ways that could impose unanticipated conditions or restrictions on our ability to commercialize products and subscriptions incorporating such software. Moreover, we cannot assure you that our processes for controlling our use of open source software in our products and subscriptions will be effective. From time to time, we may face claims from third parties asserting ownership of, or demanding release of, the open source software or derivative works that we developed using such software (which could include our proprietary source code), or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation. Litigation could be costly for us to defend, have a negative effect on our results of operations and financial condition or require us to devote additional research and development resources to change our solutions. Responding to any infringement or noncompliance claim by an open source vendor, regardless of its validity, discovering certain open source software code in our technologies and products, or a finding that we have breached the terms of an open source software license, could harm our business, results of operations and financial condition.

We license technology from third parties, and our inability to maintain those licenses could harm our business.

We currently incorporate, and will in the future incorporate, technology that we license from third parties into our solutions. We cannot be certain that our licensors do not or will not infringe on the intellectual property rights of third parties or that our licensors have or will have sufficient rights to the licensed intellectual property in all jurisdictions in which we may sell our products. Some of our agreements with our licensors may be terminated by them for convenience, or otherwise provide for a limited term. If we are unable to continue to license technology because of intellectual property infringement claims brought by third parties against our licensors or against us, or if we are unable to continue our license agreements or enter into new licenses on commercially reasonable terms, our ability to develop and sell solutions and services containing that technology would be limited, and our business could be harmed. Additionally, if we are unable to license technology from third parties, we may be forced to acquire or develop alternative technology, which we may be unable to do in a commercially feasible manner or at all, and may require us to use alternative technology of lower quality or performance standards. This could limit or delay our ability to offer new or competitive solutions and increase our costs. As a result, our margins, market share, and results of operations could be harmed.

We may incur losses associated with foreign currency fluctuations.

Our reporting and functional currency is the United States dollar. However, a significant portion of operating expenses is denominated in Canadian dollars. As a result, we are exposed to fluctuations in the Canadian dollar exchange rate for which we have not entered into foreign exchange hedges. Currency markets by their nature are volatile and have seen increased volatility recently due to the COVID-19 pandemic. A significant appreciation of the Canadian dollar relative to the U.S. dollar could materially impact our profitability. In addition, we will be exposed to greater foreign exchange risk from other countries as our operations, and our operating expenses, expand in foreign jurisdictions.

If we are unable to attract and retain qualified personnel, our business could be harmed.

Our future performance depends in part upon attracting and retaining key technical, sales and management personnel. There can be no assurance that we can retain these personnel and continue to recruit required talent quickly enough and with the skills required to enable us to execute on our business plans. Effective and thorough succession planning is also important to our long-term success. Failure to ensure effective transfer of knowledge and smooth transitions involving key employees could hinder our strategic planning and execution. The loss of any key employee, or the inability of a key employee to work for a prolonged period of time (for example, as a result of the illness of a key employee or the inability of a key employee to work due to government restrictions), could result in significant disruptions to our operations, including adversely affecting the timeliness of product releases, the successful implementation and completion of our initiatives and our results of operations.

Competition for people with the specific skills that we require is significant in the industry in which we operate and in the Vancouver, B.C., Austin, Texas, Silicon Valley in California, and Ho Chi Minh City, Vietnam areas where we have a substantial presence and require highly skilled personnel and, as a result, we may face difficulties in attracting, retaining and motivating employees. In addition, periodic changes to the organizational structure, geographic focus and concentration and compensation plans for our sales organization may be disruptive and may impact our sales cycle or alter the average cost of revenue. The inability to obtain key employees or the loss of the services of our key employees and related severance or termination payments could have a material adverse effect on our business, operating results and financial condition.

In addition, we believe that our corporate culture fosters innovation, creativity, diversity, and teamwork. As our organization grows and evolves, we may need to implement more complex organizational management structures or adapt our corporate culture and work environments to ever-changing circumstances, such as during times of a natural disaster or pandemic (including COVID-19), and these changes could impact our ability to compete effectively or have an adverse impact on our corporate culture.

We may become involved in litigation or dispute resolution that may negatively affect us.

From time to time, we are and may be subject to litigation or dispute resolution relating to various types of claims, including claims (for damages or otherwise) related to undetected errors or malfunctions of our services and products, data breaches, intellectual property violation, commercial or contract disputes, employment matters, or under applicable securities laws. A product liability or securities class action claim, in particular, could seriously harm our business because of the costs of defending the lawsuit, diversion of employees’ time and attention and potential damage to our reputation. Further, our services and products are complex and often implemented by our customers to interact with third-party technology. Claims may be made against us for damages properly attributable to those third-party technologies, regardless of our lack of responsibility for any failure resulting in a loss. As a result, we could be required to pay substantial amounts in settlement or in damages upon the determination of any of these types of claims and incur

damage to our business and reputation. The likelihood of such claims and the amount of damages we may be required to pay may increase as our customers increasingly use our services and products. Our insurance may not cover potential claims, or may not be adequate to cover all costs incurred in defense of potential claims or to indemnify us for all liability that may be imposed.

Our international operations and plans for future international expansion expose us to significant risks, and failure to manage those risks could adversely impact our business.

We intend to continue to pursue and commit resources to growth opportunities beyond North America which could result in international sales accounting for an increasing portion of our consolidated revenues. Outside of North America, we maintain offices in Vietnam and the United Kingdom and personnel in these and other countries. We are also looking to expand our operations in the EMEA region. We may not be aware of all the factors that may affect our business in foreign jurisdictions. We will be subject to a number of risks associated with international business activities that may increase liability or costs, lengthen sales cycles and/or product development cycles or require significant management attention.

International operations carry certain risks and associated costs, such as: the complexities and expense of administering a business abroad; complications in compliance with, and unexpected changes in legal and regulatory restrictions or requirements; foreign laws, international import and export legislation; trading and investment policies; economic and political instability; foreign currency fluctuations; exchange controls; increased nationalism and protectionism; tariffs and other trade barriers; difficulties in collecting accounts receivable; potential adverse tax consequences; uncertainties of laws and enforcement relating to intellectual property and privacy rights; unauthorized copying of software; difficulty in managing a geographically dispersed workforce in compliance with diverse local laws and customs; potential governmental expropriation (especially in countries with undemocratic/authoritarian ruling parties); and other factors depending upon the country involved. There can be no assurance that we will not experience these risks in the future. If foreign operations expand to the point where they account for a significant portion of our consolidated revenues, the presence of such risks could have a material adverse effect on our business, operating results and financial condition.

Future acquisitions, strategic investments, partnerships, or alliances could be difficult to identify and integrate, divert the attention of key management personnel, disrupt our business, dilute stockholder value and adversely affect our results of operations and financial condition.

We expect to continue to evaluate possible acquisitions of, or strategic investments in, businesses, products or technologies that could be complementary to our business. Any integration process will require significant time and resources and we may not be able to manage the process successfully. If our customers are uncertain about our ability to operate on a combined basis, they could delay or cancel orders for our products. We may not successfully evaluate or utilize the acquired technology and accurately forecast the financial impact of an acquisition transaction, including accounting charges. The areas where we may face risks include:

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difficulties in integrating the operations, technologies, products and/or personnel of any companies we acquire into our operations;

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potential disruption of our ongoing business and diversion of management’s attention from normal daily operations of the business;

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insufficient revenues to offset increased expenses associated with acquisitions;

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potential for third party intellectual property infringement claims against any companies we acquire;

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failure to successfully further develop acquired technology, resulting in the impairment of amounts

capitalized as intangible assets;

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impairment of relationships with customers and partners of any companies we acquire or in which we invest, or with our customers and partners, as a result of the integration of acquired operations;

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impairment of relationships with employees of any acquired companies or our existing employees as a result of integration of new management personnel;

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impact of known potential, or unknown, liabilities associated with any companies we acquire;

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failure to adequately understand and mitigate the risks of new product lines and services; and

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in the case of foreign acquisitions, uncertainty regarding foreign laws and regulations and difficulty integrating operations and systems as a result of cultural, systems and operational differences.

Our failure to be successful in addressing these risks or other problems encountered in connection with our past or future acquisitions (if any) could cause us to fail to realize the anticipated benefits of such acquisitions, incur unanticipated liabilities and adversely affect our business, operating results or financial condition, or result in significant or material control weaknesses.

Future acquisitions or dispositions (if any) could also result in dilutive issuances of our Common Shares, a decrease in our cash and cash equivalents and short-term investments, the incurrence of additional expense related to compliance, the incurrence of indebtedness with restrictive and affirmative covenants, including to fund the purchase price of any acquisition, contingent liabilities or amortization of expenses, or write-offs of goodwill, any of which could harm our financial condition and negatively impact our operating results.

Because we recognize revenue from subscriptions to our cloud services ratably over the term of the Billings, downturns or upturns in new business will not be immediately reflected in our results of operations.

We generally recognize revenue from customer subscriptions to our cloud services ratably over the term of the Billings. As a result, most of the revenue that we report in each quarter results from the recognition of deferred revenue relating to Billings entered into during previous periods. Consequently, a decline in new or renewal subscriptions in any one quarter will not necessarily be fully reflected in the revenue in that quarter but will negatively affect revenue in future quarters. In addition, we may be unable to adjust our cost structure to reflect the changes in Billings. Accordingly, the effect of significant downturns in sales and market acceptance of our services or products may not be fully reflected in our results of operations until future periods. We may also be unable to timely reduce our cost structure in line with a significant deterioration in sales or renewals that would adversely affect our results of operations and financial condition.

Most of our Billings are conducted on a resale basis. As a result, large or unexpected amounts of product returns could negatively impact our Billings and future revenue.

Most Billings are conducted via channel partners who purchase from us in order to resell to their customers. While our services are provided directly to the end user customer, the orders, which include ship dates, customer name, product, pricing and volume, come in various forms from the reseller partner (sales reports, purchase orders, shipping reports, royalty reports, etc.). We ship the software, commence the subscription term and invoice the reseller (and receive payment from the reseller) based on receipt of, or ship dates contained in, these forms of evidence of the end customer purchase, and report this as a Billing for the applicable period. Accordingly, we rely upon the reseller partner to have sufficiently concluded the sales process with the end user customer to ensure that the order is valid and the risk of returns is kept to a minimum. It is possible that a reseller may order from us and subsequently return the product in accordance

with generally accepted industry practices. In such cases, if a sale had been reported in a prior period, it would have to be subsequently reversed, impacting future Billings and revenue performance.

We may be subject to audits by tax authorities in the various jurisdictions in which we operate as well as the effects of tax reform, any of which may negatively affect our business, results of operations and financial condition.

Significant judgment is required in determining our provision for income taxes. Various internal and external factors may have favourable or unfavourable effects on our future provision for income taxes, income taxes payable and/or effective income tax rate. These factors include, but are not limited to: changes in tax laws, regulations and/or rates; results of audits by tax authorities; changing interpretations of existing tax laws or regulations; changes in estimates of prior years’ items; future levels of research and development spending; changes in the overall mix of income among the different jurisdictions in which we operate; and changes in overall levels of income before taxes. To the extent that the taxation authorities do not agree with our tax positions, we may not be able to realize all or a portion of the tax benefits recognized. Furthermore, new accounting pronouncements or new interpretations of existing accounting pronouncements can have a material impact on our effective income tax rate.

We file income tax returns and pay income taxes in jurisdictions where we believe we are subject to tax. In jurisdictions in which we do not believe we are subject to tax and therefore do not file income tax returns, we can provide no certainty that tax authorities in those jurisdictions will not subject one or more tax years (since our inception or of our subsidiaries) to examination. Tax examinations are often complex as tax authorities may disagree with the treatment of items reported by us, the result of which could have a material adverse effect on our financial condition and results of operations.

In addition, in response to significant market volatility and disruptions to business operations resulting from the COVID-19 pandemic, legislatures and taxing authorities in many jurisdictions in which we operate may propose changes to their tax rules. These changes could include modifications that have temporary effect, and more permanent changes. The impact of these potential new rules on us, our long-term tax planning, and our tax effective tax rate could be material.

Our business is subject to the risks of product liability and that product defects, from real or perceived defects in our solutions or their misuse by our customers or third parties, potentially expose us to substantial liability.

We may be subject to claims related to product liability and consumer protection legislation, particularly in the United States. The limitation of liability provisions in the standard terms and conditions in our license agreements may not fully or effectively protect us from claims as a result of applicable laws or unfavourable judicial decisions in the United States or other countries. The sale and support of our products also entails the risk of product liability claims. Although we may be indemnified by our third-party manufacturers for product liability claims arising out of manufacturing defects or inadvertent activation by manufacturers of our Absolute agent on endpoint devices, because we control the design of our products, we may not be indemnified for product liability claims arising out of design defects. We maintain insurance to protect against, amongst other matters, certain claims associated with the use of our products, but our insurance coverage may not adequately cover any claim asserted against us. In addition, even claims that ultimately are unsuccessful could result in our expenditure of funds in litigation, divert management’s time and other resources, and harm our reputation.

If we are unable to enforce and protect our non-patent proprietary rights, including trade secrets, our business could be harmed.

In addition to patents, we rely on, among other things, copyrights, trademarks, trade secrets, confidentiality procedures and contractual provisions to protect our proprietary rights in Canada, the United States and other countries. As a result, it is possible that the following may occur: some or all of the confidentiality agreements entered into by us with our employees, consultants, business partners, customers, potential customers and other third parties will not be honoured; third parties will independently develop equivalent technology or misappropriate our technology and/or designs; disputes will arise with our strategic partners, customers or others concerning the ownership of intellectual property; there may occur an unauthorized disclosure of source code, know-how or trade secrets; or contractual provisions may not be enforced in foreign jurisdictions. There can be no assurance that we will be successful in protecting our proprietary rights in Canada, the United States and other countries.

Certain of our market opportunity estimates and growth forecasts included in this MD&A could prove to be inaccurate, and any real or perceived inaccuracies may harm our reputation and negatively affect our business.

This MD&A, and our other public disclosures, include certain estimates of the addressable market for our products and solutions. Market opportunity estimates and growth forecasts, whether obtained from third-party sources or developed internally, are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The estimates and forecasts in this MD&A, relating to the size and expected growth of our device and application opportunities and/or target markets may prove to be inaccurate. In particular, our estimates regarding our current and projected market opportunity are difficult to predict. In addition, our internal estimates of the addressable market for endpoint security solutions reflect the opportunity available from all participants and potential participants in the market and we cannot predict with precision our ability to address this demand or the extent of market adoption of our solution. The addressable market we estimate may not materialize for many years, if ever, and even if the markets in which we compete meet the size estimates and growth forecasted in this MD&A, our business could fail to grow at similar rates, if at all. Accordingly, the forecasts of market growth included in this MD&A and our other public disclosures should not be taken as indicative of our future growth.

The market price of our Common Shares may be volatile.

The trading price of our Common Shares has in the past been subject to wide fluctuations and may also be subject to fluctuation in the future. This may make it more difficult for investors to resell our Common Shares when they want at prices that they find attractive. Increases in our Common Share price may also increase our compensation expense pursuant to our existing director, officer and employee equity compensation arrangements. Fluctuations in our Common Share price may be caused by events unrelated to our operating performance and beyond our control.

Factors that may contribute to fluctuations include, but are not limited to:

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revenue or results of operations in any quarter failing to meet the expectations, published or otherwise, of the investment community;

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changes in recommendations or financial estimates by industry or investment analysts, or failure of industry or financial analysts to maintain coverage of us;

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actual or anticipated changes or fluctuations in our results of operations;

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announcements by us or our competitors of new products or new or terminated significant contracts, commercial relationships or capital commitments;

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rumours and market speculation involving us or other companies in our industry;

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changes in our executive management team or the composition of our Board of Directors;

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fluctuations in the share prices of other companies in the technology and emerging growth sectors;

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general market conditions, for instance, as recently affected by the COVID-19 pandemic;

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actual or anticipated developments in our business or our competitors’ businesses or the competitive landscape generally;

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litigation involving us, our industry or both, or investigations by regulators into our operations or those of competitors;

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announced or completed acquisitions of businesses or technologies by us or our competitors;

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new laws or regulations or new interpretations of existing laws or regulations applicable to our business;

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shareholder activism and related publicity;

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foreign exchange rates; and

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other risk factors as set out in this MD&A.

If the market price of our Common Shares drops significantly, shareholders could institute securities class action lawsuits against us, regardless of the merits of such claims. Such a lawsuit could cause us to incur substantial costs and could divert the time and attention of our management and other resources from our business. This could harm our business, results of operations and financial condition.

Raising additional capital may cause dilution to our shareholders.

We may sell additional equity securities in the future in order to meet our future financing needs (including through the sale of securities convertible into equity securities) and may issue additional equity securities to finance operations, acquisitions and/or other projects. We cannot predict the size of future issuances of equity securities or the size and terms of future issuances of debt instruments or other securities convertible into equity securities or the effect, if any, that future issuances and sales of our securities will have on the market price of our Common Shares. Any transaction involving the issuance of previously authorized but unissued Common Shares, or securities convertible into Common Shares, would result in dilution, and possibly substantial dilution, to our securityholders.

Our Board of Directors has the authority to authorize certain offers and sales of additional securities without the vote of, or prior notice to, our shareholders. Such additional issuances may involve the issuance of a significant number of our Common Shares at prices less than the current market price for the Common Shares.

There is no guarantee that an active trading market for our Common Shares will be maintained on the TSX and/or the Nasdaq.

Our shareholders may be unable to sell significant quantities of Common Shares into the public trading markets without a significant reduction in the price of their Common Shares, or at all. Although our Common Shares are listed for trading on the TSX and the Nasdaq, an active trading market for our shares may not be sustained. There can be no assurance that there will be sufficient liquidity of our Common Shares on the trading market, and that we will continue to meet the listing requirements of the TSX, the Nasdaq, or any other public listing exchange. The lack of an active market may impair your ability to sell your Common Shares at the time you wish to sell them or at a price that you consider reasonable.

Future issuances of equity securities by us or sales by our existing shareholders may cause the price of our

Common Shares to fall.

The market price of our Common Shares could decline as a result of issuances of securities or sales by our existing shareholders in the market, including by our directors, executive officers and significant shareholders, or the perception that these sales could occur. Sales of our Common Shares by shareholders might also make it more difficult for us to sell Common Shares at a time and price that we deem appropriate. We also expect to issue Common Shares in the future. Future issuances of Common Shares, or the perception that such issuances are likely to occur, could affect the prevailing trading prices of the Common Shares.

If securities or industry analysts do not publish research or publish unfavorable or inaccurate research about our business, our Common Share price and trading volume could decline.

Our Common Share price and trading volume may be heavily influenced by the way analysts and investors interpret our financial information and other disclosures. If securities or industry analysts do not publish research or reports about our business, delay publishing reports about our business or publish negative reports about our business, regardless of accuracy, our Common Share price and trading volume could decline.

The trading market for our Common Shares will depend, in part, on the research and reports that securities or industry analysts publish about us or our business. We do not have any control over these analysts. If the number of analysts that cover us declines, demand for our Common Shares could decrease and our Common Share price and trading volume may decline.

Even if our Common Shares are actively covered by analysts, we do not have any control over the analysts or the measures that analysts or investors may rely upon to forecast our future results. Over-reliance by analysts or investors on any particular metric to forecast our future results may result in forecasts that differ significantly from our own.

Regardless of accuracy, unfavorable interpretations of our financial information and other public disclosures could have a negative impact on our Common Share price. If our financial performance fails to meet analyst estimates, for any of the reasons discussed above or otherwise, or one or more of the analysts who cover us downgrade our Common Shares or change their opinion of our Common Shares, our Common Share price would likely decline.

We may not continue paying dividends at historical rates or at all in the future.

While we have historically declared and paid dividends on our Common Shares on a quarterly basis, future dividends will be declared and paid at the discretion of our Board of Directors, and there can be no assurance that we will continue declaring and paying dividends at historical rates or at all. As a result, the return on an investment in our Common Shares would depend upon any future appreciation in value, if any, and on a shareholder’s ability to sell Common Shares. The payment of future dividends, if any, will be reviewed periodically by our Board of Directors and will depend upon, among other things, conditions then existing including cash flow, the results of operations, financial condition, the need for funds to finance ongoing operations, and other relevant business considerations.

We or any of our non-U.S. subsidiaries may constitute “controlled foreign corporations” for U.S. federal income tax purposes, which could result in adverse tax consequences for certain of our U.S. shareholders.

U.S. holders of Common Shares that own 10% or more of the vote or value of our Common Shares (such U.S. holders, “10% Shareholders”) may suffer adverse tax consequences because our non-U.S. subsidiaries are expected to be characterized as a “controlled foreign corporation” (“CFC”) under Section 957(a) of the Internal Revenue Service Code of 1986, as amended (the “Code”).

A non-U.S. corporation is considered a CFC if more than 50 percent of (1) the total combined voting power of all classes of stock of such corporation entitled to vote, or (2) the total value of the stock of such corporation, is owned, or is considered as owned by applying certain constructive ownership rules, by “U.S. shareholders” (or, U.S. persons who own stock representing 10% or more of the vote or 10% or more of the value on any day during the taxable year of such non-U.S. corporation). Certain U.S. shareholders of a CFC generally are required to include currently in gross income such shareholders’ share of the CFC’s “Subpart F income”, a portion of the CFC’s earnings to the extent the CFC holds certain U.S. property, and a portion of the CFC’s “global intangible low-taxed income” (as defined under Section 951A of the Code). Such U.S. shareholders are subject to current U.S. federal income tax with respect to such items, even if the CFC has not made an actual distribution to such shareholders. “Subpart F income” includes, among other things, certain passive income (such as income from dividends, interests, royalties, rents and annuities or gain from the sale of property that produces such types of income) and certain sales and services income arising in connection with transactions between the CFC and a person related to the CFC. “Global intangible low-taxed income” may include most of the remainder of a CFC’s income over a deemed return on its tangible assets.

As a result of certain changes in the U.S. tax law introduced by tax legislation enacted on December 22, 2017, entitled “an Act to provide for reconciliation pursuant to titles II and V of the concurrent resolution on the budget for fiscal year 2018” (the “Amendments”), we believe that our non-U.S. subsidiary is classified as a CFC in the current taxable year. For 10% Shareholders, this may result in adverse U.S. federal income tax consequences, such as current U.S. taxation of Subpart F income, of such 10% Shareholder’s share of our non-U.S. subsidiary’s earnings to the extent our non-U.S. subsidiary holds U.S. property, and taxation of amounts treated as global intangible low-taxed income under Section 951A of the Code with respect to such shareholder, and being subject to certain reporting requirements with the Internal Revenue Service (the “IRS”). A U.S. shareholder who is an individual generally would not be allowed certain tax deductions or foreign tax credits that would be allowed to a U.S. corporation. If you are a 10% Shareholder, you should consult your own tax advisors regarding the U.S. tax consequences of acquiring, owning, or disposing our Common Shares and the impact of the Amendments, especially the changes to the rules relating to CFCs.

We may be a passive foreign investment company, which may result in adverse U.S. federal income tax consequences for U.S. Holders of Common Shares.

Generally, if for any taxable year 75% or more of our gross income is passive income, or at least 50% of the

average quarterly value of our assets are held for the production of, or produce, passive income, we would be characterized as a passive foreign investment company (“PFIC”) for U.S. federal income tax purposes. Based on the nature of our income and the value and composition of our assets, we do not believe we were a PFIC during the taxable year ended June 30, 2020. Because PFIC status is determined on an annual basis and generally cannot be determined until the end of the taxable year, there can be no assurance that we will not be a PFIC for the current or future taxable years. If we are characterized as a PFIC, U.S. shareholders may suffer adverse tax consequences, including the treatment of gains realized on the sale of our Common Shares as ordinary income, rather than as capital gain, the loss of the preferential rate applicable to dividends received on our Common Shares by individual U.S. shareholder, and the addition of interest charges to the tax on such gains and certain distributions. A U.S. shareholder of a PFIC generally may mitigate these adverse U.S. federal income tax consequences by making a Qualified Electing Fund (“QEF”) election, or, to a lesser extent, a mark-to-market election. However, we do not intend to provide the information necessary for U.S. shareholders to make QEF elections if we are classified as a PFIC.

You may be unable to enforce actions against us or certain of our directors and officers under U.S. federal securities laws.

As a corporation organized under the laws of British Columbia, Canada, it may be difficult to bring actions under U.S. federal securities law against us. Certain of our directors and officers reside principally in Canada. Because certain of our assets and the assets of these persons are located outside of the United States, it may not be possible for investors to effect service of process within the United States upon us or those persons. Furthermore, it may not be possible for investors to enforce against us or those persons not in the United States, judgments obtained in U.S. courts based upon the civil liability provisions of the U.S. federal securities laws or other laws of the United States. There is doubt as to the enforceability, in original actions in Canadian courts, of liabilities based upon U.S. federal securities laws and as to the enforceability in Canadian courts of judgments of U.S. courts obtained in actions based upon the civil liability provisions of the U.S. federal securities laws. Therefore, it may not be possible to enforce those actions against us, or our directors and officers.

We are an emerging growth company and intend to take advantage of reduced disclosure requirements applicable to emerging growth companies, which could make our Common Shares less attractive to investors.

We are an “emerging growth company” (“EGC”) as defined in the U.S. Jumpstart Our Business Startups Act of 2012, as amended (the “JOBS Act”). We will remain an EGC until the earliest to occur of (i) the last day of the fiscal year in which we have total annual gross revenue of $1.07 billion or more; (ii) June 30, 2026 (the last day of the fiscal year ending after the fifth anniversary of the date of the completion of the first sales of its common equity pursuant to an effective registration statement under the United States Securities Act of 1933, as amended; (iii) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three- year period; or (iv) the date we qualify as a “large accelerated filer” under the rules of the SEC, which means the market value of our Common Shares held by non-affiliates exceeds $700 million as of the last business day of its most recently completed second fiscal quarter after we have been a reporting company in the United States for at least 12 months. For so long as we remain an EGC, we are permitted to and intend to rely upon exemptions from certain disclosure requirements that are applicable to other U.S. public companies that are not EGCs. These exemptions include not being required to comply with the auditor attestation requirements of Section 404 (“Section 404”) of the Sarbanes-Oxley Act (2002), as amended (the “Sarbanes-Oxley Act”).

We may take advantage of some, but not all, of the available exemptions available to EGCs. We cannot predict whether investors will find our Common Shares less attractive if we rely on these exemptions. If

some investors find our Common Shares less attractive as a result, there may be a less active trading market for our Common Shares and the price of our Common Shares may be more volatile.

We will incur increased costs as a result of operating as a public company in the United States and our management will be required to devote substantial time to new compliance initiatives.

As a U.S. public company since October 2020, particularly if or when we are no longer an EGC, we will incur significant legal, accounting and other expenses, in addition to those we incur as a Canadian public company, that we did not incur prior to being listed in the United States. In addition, the Sarbanes-Oxley Act, and rules implemented by the SEC and the Nasdaq impose various other requirements on public companies, and we will need to spend time and resources to ensure compliance with our reporting obligations in both Canada and the United States.

In addition, being a public company in the United States will increase legal and financial compliance as well as regulatory costs, such as additional Nasdaq fees, and will make some of our public company obligations more time consuming. We intend to invest resources to comply with evolving laws, regulations and standards in both Canada and the United States, and this investment may result in increased general and administrative expenses and increased diversion of management’s time and attention from revenue-generating activities to compliance activities. If our efforts to comply with public company laws, regulations and standards in the United States, Canada or elsewhere (as applicable) are insufficient, regulatory authorities may initiate legal proceedings against us and our business may be harmed. Failure to comply with these rules might also make it more difficult for us to obtain or maintain certain types of insurance, including director and officer liability insurance, and we might be forced to accept reduced policy limits and coverage or incur substantially higher costs to obtain the same or similar coverage. The impact of these events could also make it more difficult for us to attract and retain qualified persons to serve on our Board of Directors, on committees of our Board of Directors or as members of senior management.

As a foreign private issuer, we are subject to different U.S. securities laws and rules than a domestic U.S. issuer, which may limit the information publicly available to our U.S. shareholders.

We currently qualify as a “foreign private issuer” under applicable U.S. federal securities laws and, therefore, are not required to comply with all of the periodic disclosure and current reporting requirements of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”) and related rules and regulations. As a result, we do not file the same reports that a U.S. domestic issuer would file with the SEC, although we will be required to file with or furnish to the SEC the continuous disclosure documents that we are required to file in Canada under Canadian securities laws. In addition, our officers, directors and principal shareholders are currently exempt from the reporting and “short swing” profit recovery provisions of Section 16 of the Exchange Act. Therefore, our shareholders may not know on as timely a basis when our officers, directors and principal shareholders purchase or sell our securities as the reporting periods under the corresponding Canadian insider reporting requirements are longer. In addition, as a foreign private issuer, we are currently exempt from the proxy rules under the Exchange Act. We are also currently exempt from Regulation FD, which prohibits issuers from making selective disclosures of material non-public information. While we expect to comply with the corresponding requirements relating to proxy statements and disclosure of material non-public information under Canadian securities laws, these requirements differ from those under the Exchange Act and Regulation FD and shareholders should not expect to receive in every case the same information at the same time as such information is provided by U.S. domestic issuers.

In addition, as a foreign private issuer, we currently have the option to follow certain Canadian corporate governance practices, except to the extent that such laws would be contrary to U.S. federal securities laws and Nasdaq listing rules, and provided that we disclose the requirements we are not following and describe

the Canadian practices we follow instead. We plan to rely on this exemption in part. As a result, our shareholders may not have the same protections afforded to shareholders of U.S. domestic issuers that are subject to all U.S. corporate governance requirements.

In the future, we may cease to qualify as a foreign private issuer. If we cease to qualify, at a future date we will become subject to the same reporting requirements and corporate governance requirements as a U.S. domestic issuer, which may increase our costs of being a public company in the United States.

As a result of being a public company in the United States, we are obligated to maintain proper and effective internal control over financial reporting in accordance with laws, rules and regulations in the United States, including the Sarbanes-Oxley Act, and any failure to maintain the adequacy of these internal controls may negatively impact investor confidence in our company and, as a result, the value of our Common Shares.

We are subject to the reporting requirements of the Exchange Act, the Sarbanes-Oxley Act and the rules and regulations of the Nasdaq. In particular, we are required pursuant to Section 404 to furnish a report by management on, among other things, the effectiveness of our internal control over financial reporting. This assessment will need to include disclosure of any material weaknesses identified by our management in our internal control over financial reporting. In addition, our independent registered public accounting firm will be required to attest to the effectiveness of our internal control over financial reporting in our first annual report required to be filed with the SEC following the date we are no longer an EGC. We have not yet commenced the costly and challenging process of compiling the system and processing documentation necessary to perform the evaluation required under Section 404. We currently do not have an internal audit group, and we will need to hire additional accounting and financial staff with appropriate public company experience and technical accounting knowledge and compile the system and process documentation necessary to perform the evaluation needed to comply with Section 404. Any failure to maintain effective internal control over financial reporting could severely inhibit our ability to accurately report our financial condition or results of operations. If we are unable to conclude that our internal control over financial reporting is effective, or if our independent registered public accounting firm determines we have a material weakness in our internal control over financial reporting, we could lose investor confidence in the accuracy and completeness of our financial reports, the market price of our Common Shares could decline, we could be subject to sanctions or investigations by the Nasdaq, the SEC or other regulatory authorities and our access to the capital markets could be restricted in the future.

EXHIBIT A


Selected Operating & Financial Metrics \| Q2 F2021

USD Millions, except per share data

Q2 F2021

Q1 F2021

Q4 F2020

Q3 F2020

Q2 F2020

Q1 F2020

ARR

Total ARR

117,471

111,748

108,338

101,444

100,293

99,134

yoy growth

17.1

12.7

10.6

6.6

5.3

6.5

New Logo ARR

1,466

1,790

3,482

952

1,280

1,055

yoy growth

14.5

69.7

67.7

(11.7

24.5

7.9

Net Dollar Retention

109

105

104

101

100

101

# of Active Endpoints

11,463

10,599

9,916

9,784

9,692

9,620

yoy growth

18.3

10.2

11.1

10.6

7.4

5.2

TOTAL ARR BY VERTICAL

Enterprise & Government

77,561

75,013

74,060

70,648

69,555

67,010

yoy growth

11.5

11.9

13.7

13.5

12.4

11.4

Education

39,910

36,736

34,278

30,796

30,738

32,125

yoy growth

29.8

14.4

4.3

(6.5

(7.9

(2.4

TOTAL ARR BY GEOGRAPHY

North America

98,930

95,069

93,565

87,780

87,362

86,692

yoy growth

13.2

9.7

9.2

4.2

3.1

4.4

International

18,541

16,679

14,773

13,664

12,931

12,442

yoy growth

43.4

34.1

19.9

24.4

23.2

23.5

REVENUE

Total Revenue

29,857

28,496

27,159

26,062

25,798

25,652

yoy growth

15.7

11.1

7.4

4.7

5.5

5.6

Recurring Revenue

28,924

27,591

25,923

25,123

24,860

24,603

% of revenue

96.9

96.8

95.4

96.4

95.9

yoy growth

16.3

12.1

7.5

4.9

6.3

6.1

Cloud Services

27,668

26,380

24,817

24,069

23,846

23,602

yoy growth

16.0

11.8

7.2

4.4

6.0

5.8

Managed Services

1,256

1,211

1,106

1,054

1,014

1,001

yoy growth

23.8

21.0

14.7

16.8

14.2

14.9

Other Revenue

933

905

1,236

939

938

1,049

% of revenue

3.1

3.2

4.6

3.6

4.1

yoy growth

(0.5

(13.7

6.3

0.7

(11.4

(6.4

OTHER METRICS

Gross Margin

26,502

25,380

24,171

22,679

22,775

22,419

Margin %

88.8

89.1

89.0

87.0

88.3

87.4

Adj. EBITDA (non-IFRS)

8,049

8,148

8,005

6,058

6,216

7,074

Margin %

27.0

28.6

29.5

23.2

24.1

27.6

EPS

0.04

0.06

0.05

0.06

0.08

Adj. EPS (non-IFRS)

0.16

0.19

0.14

0.15

0.17

Diluted Shares

48,983

42,627

42,512

42,418

41,723

Fully Diluted Shares

52,246

45,832

45,229

44,845

43,859

44,170

Effective Tax Rate

27.9

33.2

35.3

32.3

29.6

25.6

Cash From Operating Activities

13,410

14,707

11,570

3,735

2,174

7,478

yoy growth

516.8

96.7

233.1

328.8

12.8

87.5

Cash and Short-Term Equivalents

131,984

58,241

47,078

38,861

38,561

38,947

yoy growth

186.2

43.7

(30.1

(21.5

(21.0

(91.5

Total Deferred Revenue

154,089

148,444

142,603

127,609

128,806

130,782

yoy growth

19.6

13.5

6.1

(0.5

(2.2

(3.7

EXHIBIT A (Continued)

Non-IFRS earnings per share (“Adjusted EPS”) is herein defined as the Company’s diluted earnings per share adjusted to exclude other income / expenses (comprised of interest income or expenses and foreign exchange gains or losses), income taxes, depreciation / amortization of intangible assets, property and equipment, and right of use assets, share-based compensation, restructuring or reorganization charges and post-retirement benefits and non-recurring items.

Adjusted EPS does not have any standardized meaning under IFRS and therefore it may not be comparable to similar measures presented by other issuers. We believe this metric provides useful information to investors and others in understanding and evaluating our operating results.

Adjusted EPS (non-IFRS) Reconciliation


	Q2 F2021		Q1 F2021		Q4 F2020		Q3 F2020		Q2 F2020		Q1 F2020
Diluted EPS	$	0.04	$	0.06	$	0.05	$	0.05	$	0.06	$	0.08
Other income / expenses	$	0.01	$	0.01	$	—	$	—	$	—	$	—
Income taxes	$	0.01	$	0.03	$	0.03	$	0.03	$	0.03	$	0.03
Share-based compensation	$	0.05	$	0.06	$	0.08	$	0.03	$	0.03	$	0.03
Amortization of property and equipment and right of use assets	$	0.03	$	0.03	$	0.03	$	0.03	$	0.03	$	0.03
Non-recurring Items	$	0.02	$	—	$	—	$	—	$	—	$	—

Adjusted EPS	$	0.16	$	0.19	$	0.19	$	0.14	$	0.15	$	0.17

Exhibit 99.3

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Christy Wyatt, Chief Executive Officer of Absolute Software Corporation, certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Absolute Software Corporation (the “issuer”) for the interim period ended December 31, 2020.

No misrepresentations: Based on my knowledge, having exercised reasonable diligence, the interim filings do not contain any untrue statement of a material fact or omit to state a material fact required to be stated or that is necessary to make a statement not misleading in light of the circumstances under which it was made, with respect to the period covered by the interim filings.

Fair presentation: Based on my knowledge, having exercised reasonable diligence, the interim financial report together with the other financial information included in the interim filings fairly present in all material respects the financial condition, financial performance and cash flows of the issuer, as of the date of and for the periods presented in the interim filings.

Responsibility: The issuer’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (DC&P) and internal control over financial reporting (ICFR), as those terms are defined in National Instrument 52-109 Certification of Disclosure in Issuers’ Annual and Interim Filings, for the issuer.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(ii) information required to be disclosed by the issuer in its annual filings, interim filings or other reports filed or submitted by it under securities legislation is recorded, processed, summarized and reported within the time periods specified in securities legislation; and

(b)

designed ICFR, or caused it to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with the issuer’s GAAP.

5.1	*Control framework:* The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2	*ICFR — material weakness relating to design:* N/A

5.3	*Limitation on scope of design:* N/A

6.	*Reporting changes in ICFR:* The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2020 and ended on December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 9, 2021

(signed) “Christy Wyatt”

Christy Wyatt

Chief Executive Officer

Exhibit 99.4

FORM 52-109F2

CERTIFICATION OF INTERIM FILINGS

FULL CERTIFICATE

I, Steven Gatoff, Chief Financial Officer of Absolute Software Corporation, certify the following:

1.	*Review:* I have reviewed the interim financial report and interim MD&A (together, the “interim filings”) of Absolute Software Corporation (the “issuer”) for the interim period ended December 31, 2020.

5.	*Design:* Subject to the limitations, if any, described in paragraphs 5.2 and 5.3, the issuer’s other certifying officer and I have, as at the end of the period covered by the interim filings

(a)

designed DC&P, or caused it to be designed under our supervision, to provide reasonable assurance that

(i) material information relating to the issuer is made known to us by others, particularly during the period in which the interim filings are being prepared; and

(b)

5.1	*Control framework:* The control framework the issuer’s other certifying officer and I used to design the issuer’s ICFR is Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

5.2	*ICFR — material weakness relating to design:* N/A

5.3	*Limitation on scope of design:* N/A

6.	*Reporting changes in ICFR:* The issuer has disclosed in its interim MD&A any change in the issuer’s ICFR that occurred during the period beginning on October 1, 2020 and ended on December 31, 2020 that has materially affected, or is reasonably likely to materially affect, the issuer’s ICFR.

Date: February 9, 2021

(signed) “Steven Gatoff”

Steven Gatoff

Chief Financial Officer

Exhibit 99.5

LOGO

Absolute Software Reports Second Quarter Fiscal 2021 Financial Results

Accelerating annual revenue growth of 16% driven by strong ARR growth of 17%

VANCOUVER, British Columbia – February 9, 2021 - Absolute Software Corporation (“Absolute” or the “Company”) (TSX: ABST) (NASDAQ: ABST), a leader in Endpoint Resilience^™ solutions, today announced its financial results for its second quarter fiscal 2021 ended December 31, 2020. All dollar figures are stated in U.S. dollars, unless otherwise indicated.

“As we all approach the one-year milestone in our remote working and distance learning journeys, the massive market opportunity for Absolute remains clear and in focus,” said Christy Wyatt, President and Chief Executive Officer at Absolute Software. “Our strong fiscal Q2 results reflect increased demand for the Absolute Resilience platform, the only firmware-based solution across over half a billion devices that enables customers to always know where their endpoints are, take deep control and security actions on those devices, and help their security controls repair themselves.“

Second Quarter Fiscal 2021 (“Q2 F2021”) Financial Highlights

•

Total revenue in Q2 F2021 was $29.9 million, representing an increase of 16% over Q2 F2020 revenue.

•

Adjusted EBITDA⁽¹⁾ in Q2 F2021 was $8.0 million, or 27% of revenue, up from $6.2 million, or 24% of revenue, in Q2 F2020.

•

New Logo ARR⁽¹⁾⁽²⁾ was $1.5 million in Q2 F2021, compared to $1.3 million in Q2 F2020.

•

Net Dollar Retention⁽¹⁾⁽³⁾ from existing customers was 109% in Q2 F2021, compared to 100% in Q2 F2020.

•

Net income in Q2 F2021 was $1.9 million, compared to 2.7 million in Q2 F2020.

•

Absolute paid a quarterly dividend of CAD$0.08 per common share during Q2 F2021.

•

Cash generated from operating activities in Q2 F2021 was $13.4 million, compared to $2.2 million in Q2 F2020.

(1)	Refer to the “Non-IFRS Measures and Key Metrics” section of the Q2 F2021 MD&A for further discussion of this measure.

(2)	Beginning in Q2 F2021, we have changed the nomenclature of Total ARR from sales to new customers during a period from “ARR from New Customers” to “New Logo ARR”. There has been no change in the method by which this measure is calculated.

(3)

Selected Quarterly Information

USD Millions, except per share data

YTD

F2021

F2020

Change

F2021

F2020

Change

Total annual recurring revenue (“ARR”)

117.5

100.3

–more–

Page 2


Revenue
Recurring revenue⁽¹⁾	$	29.0		$	24.9		16	%	$	56.6		$49.5	14%
Other	$	0.9		$	0.9		(0	%)	$	1.8		$ 1.9	(7%)
Total	$	*29.9*		$	25.8		16	%	$	*58.4*		$51.4	13%
Net income	$	1.9		$	2.7		(30	)%	$	4.5		$ 6.2	(27%)
Per share (basic)	$	0.04		$	0.06				$	0.10		$0.15
Per share (diluted)	$	0.04		$	0.06				$	0.09		$0.14
As a percentage of revenue		6	%		11	%				8	%	12%
Adjusted EBITDA⁽²⁾	$	8.0		$	6.2		30	%	$	16.2		$13.2	23%
As a percentage of revenue		27	%		24	%				28	%	26%
Cash from operating activities	$	13.4		$	2.2		517	%	$	28.1		$9.6	191%
Dividends paid	$	3.0		$	2.5		20	%	$	5.6		$5.0	11%
Per share (CAD)	$	*0.08*		$	0.08				$	*0.16*		$0.16
Cash, cash equivalents, and short-term investments	$	132.0		$	38.6		242	%
Total assets	$	213.9		$	105.1		104	%
Deferred revenue	$	154.1		$	128.8		20	%
Common shares outstanding		49.2			42.3		16	%

Notes:

Recurring revenue represents revenue derived from cloud services and managed services, both of which are included as part of Total ARR (as defined below). Other revenue represents revenue derived from non-recurring professional services and ancillary product lines, including consumer products. See the Q2 F2021 MD&A for full disclosure regarding these measures.

2.	Throughout this document, Adjusted EBITDA (as defined below) is used as a profitability measure. Please refer to the “Non-IFRS Measures and Key Metrics” section of the Q2 F2021 MD&A for further discussion on this and other non-IFRS measures.

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Q2 F2021 & Recent Business Highlights

Product and service highlights:

•

We continued adding to our Application Persistence^™ portfolio of self-healing applications, including Netskope^® Cloud Access Security Broker (CASB), Next-Gen Secure Web Gateway (NG-SWG) and Palo Alto Networks^® GlobalProtect^™ security platform, enabling them to be monitored and autonomously repair themselves, so they remain installed, healthy, and undeletable.

Business and organizational developments:

•

In October, Christy Wyatt, Absolute’s President and Chief Executive Officer was named ‘New CEO of the Year’ by The Globe and Mail’s Report on Business magazine, based on her significant impact on the Company and its strategy in less than three years of tenure in her role.

•

In November, we announced Sound Physicians, a physician-led operator of medical clinics across the U.S., relies on the Absolute Resilience^™ platform to secure remote endpoints that routinely process and store sensitive patient data protected by the Health Insurance Portability and Accountability Act (HIPAA).

•

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Page 4

coming years – and demonstrates our commitment to ensuring the highest levels of cloud security across all government agencies.

•

Partner and other highlights included:

•

Absolute was added to the HealthTrust Group Purchasing Organization offering that Lenovo and CDW sales teams are leveraging in healthcare sector.

•

Dell’s Blueprint for Success program, originally launched in Q1 with a focus on education, has now been expanded to cover state and local governments and healthcare.

•

Additional software bundles were launched with HP in North America and EMEA, supporting consumers as well as WFH, remote workers and BYOD users.

•

Absolute increased partner engagement in Q2 via our new Partner Program, which in turn led to increased activity in our channel pipeline.

F2021 Financial Outlook

The Company is updating its previously disclosed financial outlook for the full year fiscal 2021 as follows:

•

The Company is raising its outlook on revenue from $116 million to $118 million (representing 11% to 13% annual growth) to $117 million to $119 million (representing 12% to 14% annual growth).

•

The Company is raising the lower end of its outlook on Adjusted EBITDA from 21% to 24% of revenue to 22% to 24% of revenue.

•

The Company is also raising the lower end of its outlook on cash from operating activities margin from 25% to 34% of revenue to 26% to 34% of revenue.

•

The Company is maintaining its outlook for capital expenditures and expect them to be between $3.0 million and $4.0 million.

The foregoing outlook and expectations constitute forward-looking statements and financial outlook and are qualified in their entirety by the “Forward-Looking Statements” cautionary statement below.

Quarterly Dividend

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Quarterly Filings and Related Quarterly Financial Information

Management’s Discussion and Analysis (“MD&A”) and Consolidated Financial Statements and the notes thereto for the fiscal period ended December 31, 2020 can be obtained today from Absolute’s corporate website at www.absolute.com. The documents will also be available under Absolute’s SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov. Additionally, the Company has published on the Investor Relations section of its website (www.absolute.com/company/investors/) an Q2 F2021 Earnings Presentation and a dashboard of Selected Operating and Financial Metrics.

Conference Call

Absolute Software will hold a conference call to discuss its Q2 F2021 financial results on Tuesday, February 9, 2021, at 5:00 p.m. ET (2:00 p.m. PT) after the financial markets close.

The call will be accessible by dialing 647-427-7450 or 1-888-231-8191. A live audio webcast of the conference call will also be available via the Absolute Investor Relations website.

The conference call will be archived for replay until Tuesday, February 16, 2021. To access the archived conference call, please dial 416-849-0833 or 1-855-859-2056 and enter the reservation code 4639198. An archived replay of the webcast will be available for 90 days.

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Non-IFRS Measures and Key Metrics

Throughout this press release, the Company refers to a number of measures and metrics that the Company believes are meaningful in the assessment of the Company’s performance. Many of these metrics are non-standard measures under International Financial Reporting Standards (“IFRS”), do not have any standardized meaning under IFRS, and are unlikely to be comparable to similarly titled measures reported by other companies. Readers are cautioned that the disclosure of these items is meant to add to, and not replace, the discussion of financial results or cash flows from operations as determined in accordance with IFRS. For more complete discussion of these non-IFRS measures, please refer to the Q2 F2021 MD&A.

These measures and metrics, and their method of calculation or reconciliation to IFRS measures, are as follows:

a) Total ARR, Net Dollar Retention, and New Logo ARR

New Logo ARR (previously “ARR from New Customers”) is a key metric and measures the addition to Total ARR from sales to new customers during a period.

b) Adjusted Operating Expenses

Specifically, management adjusts for the following items in computing its Adjusted Operating Expenses:

2)	Amortization of Intangible Assets: We believe that amortization of intangible assets is not necessarily reflective of current period operational activities. In particular, the amortization of acquired technologies

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Page 7

and customer relationships relates to items arising from pre-acquisition activities. These are costs that are determined at the time of an acquisition or when other intangible assets are acquired. While it is continually reviewed for potential impairment, amortization of the cost is a static expense, one that is typically not affected by operations during any particular period.

5)	Non-recurring Items: We believe that costs that are non-recurring, unusual or non-operating in nature, such as non-recurring, unusual or non-operating tax, legal, restructuring and other one-time corporate expenses, are not necessarily reflective of current period operational activities.

The following table provides a reconciliation of our Net Income to Adjusted EBITDA:


	Three months ended December 31,						Six months ended December 31,
(in millions)	2021			2020			2021			2020
Net income	$	1.9		$	2.7		$	4.5		$	6.2
Adjustments
Depreciation of property and equipment⁽¹⁾		0.8			0.8			1.7			1.7
Amortization of right of use assets⁽²⁾		0.6			0.4			1.1			0.8
Non-recurring Items		1.0			—			1.0			—
Share-based compensation⁽³⁾		2.6			1.1			5.1			2.2
Finance income, net⁽⁴⁾		(0.0	)		(0.1	)		(0.0	)		(0.3	)
Interest on lease liability⁽⁵⁾		0.1			0.1			0.3			0.3
Foreign exchange loss⁽⁶⁾		0.3			0.1			0.5			0.0
Income tax expense⁽⁷⁾		0.7			1.1			2.0			2.3

Adjusted EBITDA	$	8.0		$	6.2		$	16.2		$	13.2

Notes:

(1)

Depreciation of property and equipment per the Statement of Cash Flows.

(2)

Amortization of right of use assets per the Statement of Cash Flows.

(3)

Share-based compensation per the Statement of Operations.

(4)

Finance income, net per the Statement of Operations.

(5)

Interest on lease liability per the Statement of Operations.

(6)

Foreign exchange loss per the Statement of Operations.

(7)

Income tax expense per the Statement of Operations.

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Page 8

About Absolute Software

Absolute Software is a leader in Endpoint Resilience solutions and the industry’s only undeletable defense platform embedded in over a half-billion devices. Enabling a permanent digital tether between the endpoint and the enterprise who distributed it, Absolute provides IT and Security organizations with complete connectivity, visibility, and control, whether a device is on or off the corporate network, and empowers them with Self-Healing Endpoint^™ security to ensure mission-critical apps remain healthy and deliver intended value.

^©2021 Absolute Software Corporation. All rights reserved. ABSOLUTE and the ABSOLUTE logo are registered trademarks of Absolute Software Corporation in the United States and/or other countries. Other names or logos mentioned herein may be the trademarks of Absolute or their respective owners. The absence of the symbols ^™ and ^® in proximity to each trademark, or at all, herein is not a disclaimer of ownership of the related trademark.

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Forward-Looking Statements

This press release contains certain forward-looking statements and forward-looking information, as defined under applicable securities laws, including, without limitation, the U.S. Private Securities Litigation Reform Act of 1995 (collectively, “forward-looking statements”), which relate to future events or Absolute’s future business, operations, and financial performance and condition. Forward-looking statements normally contain words like “will”, “intend”, “anticipate”, “could”, “should”, “may”, “might”, “expect”, “estimate”, “forecast”, “plan”, “potential”, “project”, “assume”, “contemplate”, “believe”, “shall”, “scheduled”, and similar terms and, within this press release, include, without limitation, the information under the heading “F2021 Financial Outlook”, statements regarding Absolute’s market opportunity and ability to accelerate growth, and any statements (express or implied) respecting: Absolute’s future plans, strategies, and objectives, including plans, strategies, and objectives arising out of the COVID-19 pandemic; the impacts of the COVID-19 pandemic (including, without limitation, greater/continued remote working and/or distance learning) on Absolute’s business, operations, prospects, and financial results; projected growth, revenues, margins, Adjusted EBITDA, profitability, expenses, cash from operating activities, capital expenditures, and earnings; existing and new product functionality and suitability; PC OEM and other partner activities and initiatives; and expectations for the size of the IT security industry, including as a result of COVID-19. Forward-looking statements, including the F2021 Financial Outlook, are provided as of the date hereof for the purpose of presenting information about management’s current expectations and plans relating to the future and allowing investors and others to get a better understanding of our anticipated financial position, results of operations, and operating environment. Readers are cautioned that such information may not be appropriate for other purposes.

Forward-looking statements are not guarantees of future performance, actions, or developments and are based on expectations, assumptions and other factors that management currently believes are relevant, reasonable, and appropriate in the circumstances. The material expectations, assumptions, and other factors used in developing the forward-looking statements set out herein include or relate to the following, without limitation: Absolute will be able to successfully execute its plans, strategies, and objectives; Absolute will be able to successfully manage cash flow, operating expenses, interest expenses, capital expenditures, and working capital and credit, liquidity, and market risks; Absolute will be able to leverage its past, current, and planned investments to support growth and increase profitability; there will continue to be a trend toward greater/continued remote working and/or distance learning, in the short, medium, and/or long-term, and a resulting market shift in the demand for endpoint security and Absolute’s solutions; Absolute will be able to grow revenue by selling to new customers and increasing subscriptions with existing customers at or above the rates currently anticipated; Absolute will be able to renew customers’ subscriptions more efficiently and cost effectively; the size of the IT security industry will be in line with industry experts’ and Absolute’s expectations; Absolute will maintain and enhance its competitive advantages within its industry and certain markets; Absolute will keep pace with or outpace the growth, direction, and technological advancement in its industry; industry data and projections are accurate and reliable; Absolute will be able to adapt its technology to be compatible with changes to existing, and new, operating systems such as Microsoft Windows; Absolute will be able to maintain and develop its PC OEM and other partner networks; Absolute’s current and future (if any) PC OEM partners will continue to provide embedded firmware and distribution and resale support; Absolute’s existing and new products will function as intended and will be suitable for the intended end users; Absolute will be able to design, develop, and release new products, features, and services and enhance its existing products and services; Absolute will be able to protect against the improper disclosure of data it may process, store, and/or manage; Absolute’s revenues will not become subject to increased seasonality; Absolute will use the proceeds of the October 2020 public equity offering as intended; future financing will be available to Absolute on favourable terms if and when required; Absolute will be in a financial position to issue dividends in the future; fluctuations in applicable tax rates, foreign exchange rates, and interest rates will not have a material impact on Absolute; certain tax credits will remain or become available to Absolute; Absolute will be able to attract and retain key personnel; Absolute will be successful in its brand awareness and other marketing initiatives; Absolute will be able to successfully integrate businesses, intellectual property, products, personnel, and/or technologies that it may acquire (if any); Absolute will be able to maintain and enhance its intellectual property portfolio; Absolute’s protection of its intellectual property will be sufficient and its technology does not and will not materially infringe third party intellectual property rights; Absolute will be able to obtain any necessary third party licenses on favourable terms; Absolute will be able to successfully manage the additional expenses, regulatory obligations, and legal exposures resulting from its recent SEC registration and Nasdaq listing; Absolute will not become involved in material litigation; Absolute will not face any material unexpected costs related to product liability or warranties; foreign jurisdictions will not impose unexpected risks; Absolute will maintain or enhance its accounting policies and standards and internal controls over financial reporting; and economic and market conditions (including, without limitation, as affected by the COVID-19 pandemic) will not impose unexpected risks or challenges.

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Page 10

more particularly described in the “Risk and Uncertainties” section of Absolute’s Q2 F2021 Management’s Discussion and Analysis, which is available at www.absolute.com and under Absolute’s SEDAR profile at www.sedar.com and on EDGAR at www.sec.gov): risks related to the COVID-19 pandemic and its impact on Absolute; that Absolute may not be able to accurately predict its rate of growth and profitability; that Absolute’s estimates of market opportunity and market and revenue growth may be inaccurate or Absolute may fail to grow at its estimated rates; that Absolute may need or elect to use the proceeds of the recent public equity offering other than as currently intended and disclosed; Absolute’s dependence for sales on PC OEM partners and other distribution channels; that Absolute is heavily dependent on its ability to maintain its embedded firmware with its current PC OEM partners; risks related to economic and political uncertainty; that Absolute may be unable to attract new customers or its existing customers may not renew or expand their existing commercial relationship with Absolute; that Absolute may be unable to adapt its technology to be compatible with new operating systems; that changing buying patterns in the education vertical may adversely impact Absolute’s business; that changing contracting or fiscal policies of government organization may adversely affect Absolute’s business and operations; risks relating to the evolving nature of the market for Absolute’s products; that Absolute’s software services may contain errors, vulnerabilities or defects; that Absolute could suffer security breaches impacting the third-party data that Absolute stores and the other risks associated with data security and hacking; that Absolute’s reputation may be damaged, and its financial results negatively affected, if its internal networks, systems or data are perceived to have been compromised; that customers may expose Absolute to potential violations of applicable privacy laws if the customer does not comply with such laws; that continued sales growth may cause operating challenges for Absolute; that Absolute’s focus on larger enterprise customers could result in greater costs, less favourable commercial terms, and other adverse impacts to Absolute; risks associated with any failure by Absolute to successfully promote and protect its brands; that Absolute’s business may be impacted by business cycles; risks associated with the competition Absolute faces within its industry; that Absolute’s research and development efforts may not be successful; risks resulting from interruptions or delays from third-party hosting facilities; that Absolute’s business may suffer if it cannot continue to protect its intellectual property rights; that Absolute may be unable to obtain patent or other proprietary or statutory protection for new or improved technologies or products; risks related to Absolute’s technology incorporating “open source” software; that Absolute may be unable to maintain technology licenses from third-parties; risks related to fluctuating foreign exchange rates; that the price of Absolute’s common shares may be subject to wide fluctuations; risks related to Absolute’s SEC registration and Nasdaq listing; that Absolute is reliant on its key personnel; that Absolute may be subject to litigation or dispute resolution from time-to-time; risks related to Absolute’s foreign operations; that Absolute may be unable to successfully manage and integrate acquisitions (or may be unable to successfully complete dispositions) of companies, businesses, products or technologies; risks related to Absolute’s amortization of revenue over the term of its customer subscriptions; risks related to Absolute’s reliance on its reseller and other partners for billings; income tax related risks; Absolute may become subject to product liability claims; and risks related to Absolute’s reliance on copyrights, trademarks, trade secrets, and confidentiality procedures and similar contractual provisions. Additional material risks and uncertainties applicable to the forward-looking statements herein include, without limitation, unforeseen events, developments, or factors causing any of the aforesaid expectations, assumptions, and other factors ultimately being inaccurate or irrelevant. Many of these factors are beyond the control of Absolute.

All forward-looking statements included in this press release are expressly qualified in their entirety by these cautionary statements. The forward-looking statements contained in this press release are made as at the date hereof and Absolute undertakes no obligation to update publicly or to revise any of the included forward-looking statements, whether as a result of new information, future events, or otherwise, except as may be required by applicable securities laws.

CONTACT:

Media Relations

Becki Levine

[email protected]

858-524-9443

Investor Relations

Joo-Hun Kim

[email protected]

212-868-6760

–more–

ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Financial Position

(Expressed in United States dollars unless otherwise noted) (Unaudited)


	Notes		December 31, 2020			June 30, 2020
ASSETS
CURRENT
Cash and cash equivalents		(Note 12)	$	131,624,219		$	29,727,498
Short-term investments		(Note 3)		359,832			17,350,152
Trade and other receivables		(Note 4)		22,287,648			28,990,235
Income tax receivable				545,291			111,769
Prepaid expenses and other				5,276,540			2,541,183
Contract acquisition assets – current		(Note 5)		8,323,010			7,501,339

				168,416,540			86,222,176
PROPERTY AND EQUIPMENT				4,435,336			5,563,327
RIGHT OF USE ASSETS		(Note 6)		11,359,960			9,181,927
DEFERRED INCOME TAX ASSETS		(Note 11)		22,357,305			22,278,745
CONTRACT ACQUISITION ASSETS		(Note 5)		6,274,576			5,842,845
GOODWILL				1,100,000			1,100,000

			$	213,943,717		$	130,189,020

LIABILITIES
CURRENT
Trade and other payables		(Note 7)	$	21,736,334		$	20,129,253
Income tax payable				22,777			382,041
Lease liabilities – current		(Note 8)		2,532,627			1,724,730
Deferred revenue – current		(Note 10(b))		86,028,052			80,843,795

				110,319,790			103,079,819
LEASE LIABILITIES		(Note 8)		10,433,103			8,411,101
DEFERRED REVENUE		(Note 10(b))		68,060,788			61,759,629

				188,813,681			173,250,549

SHAREHOLDERS’ EQUITY (DEFICIENCY)
Share capital		(Note 9(b))		147,976,213			81,890,311
Equity reserve				41,127,123			38,523,835
Treasury shares				(263,840	)		(263,840	)
Accumulated other comprehensive income				590,038			—
Deficit				(164,299,498	)		(163,211,835	)

				25,130,036			(43,061,529	)

			$	213,943,717		$	130,189,020

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ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Operations and Comprehensive Income

Three and six months ended December 31, 2020 and 2019

(Expressed in United States dollars unless otherwise noted) (Unaudited)


			Three months ended December 31,						Six months ended December 31,
	Notes		2020			2019			2020			2019
REVENUE			$	29,857,255		$	25,797,614		$	58,352,812		$	51,450,103
COST OF REVENUE				3,355,200			3,022,265			6,470,607			6,255,632

GROSS MARGIN				26,502,055			22,775,349			51,885,205			45,194,471

OPERATING EXPENSES
Sales and marketing				10,190,776			9,521,739			20,274,315			19,040,524
Research and development				5,824,261			4,185,723			10,885,955			7,925,309
General and administration				4,855,655			4,111,620			8,298,684			7,436,477
Share-based compensation		(Note 9(h))		2,553,776			1,070,385			5,146,781			2,237,186

				23,424,468			18,889,467			44,605,735			36,639,496

OPERATING INCOME				3,077,587			3,885,882			7,276,470			8,554,975

OTHER EXPENSE
Finance income, net				3,429			128,605			25,365			240,746
Interest expense – lease liabilities				(142,685	)		(126,727	)		(281,334	)		(257,928	)
Foreign exchange loss				(299,711	)		(40,426	)		(485,938	)		(53,245	)

				(438,967	)		(38,548	)		(741,907	)		(70,427	)

NET INCOME BEFORE INCOME TAXES				2,638,620			3,847,334			6,534,563			8,484,548
INCOME TAX EXPENSE		(Note 11)		(736,000	)		(1,137,000	)		(2,030,000	)		(2,323,000	)

NET INCOME				1,902,620			2,710,334			4,504,563			6,161,548
UNREALIZED GAIN ON DERIVATIVES, NET OF TAX				559,811			—			590,038			—

COMPREHENSIVE INCOME			$	2,462,431		$	2,710,334		$	5,094,601		$	6,161,548

BASIC INCOME PER SHARE			$	0.04		$	0.06		$	0.10		$	0.15

DILUTED INCOME PER SHARE			$	0.04		$	0.06		$	0.09		$	0.14

WEIGHTED AVERAGE NUMBER OF COMMON SHARES OUTSTANDING,
BASIC				48,982,816			41,722,849			45,801,889			41,723,856

DILUTED				52,246,460			43,859,350			49,065,830			43,848,893

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ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Changes in Shareholders’ Equity (Deficiency)

(Expressed in United States dollars unless otherwise noted) (Unaudited)


	Share Capital
	Number of Common shares			Amount			Equity reserve			Treasury shares			Accumulated Other Comprehensive Income		Deficit			Total
BALANCE, JUNE 30, 2019		41,645,552		$	76,778,014		$	36,744,933		$	(359,973)		$	—	$	(163,778,642)		$	(50,615,668)
Shares issued on options exercised		135,862			912,602			(161,710	)		—			—		—			750,892
Shares issued under Employee Share Purchase Plan (“ESPP”)		35,963			180,842			—			—			—		—			180,842
Shares issued under Performance and Restricted Share Unit plan (“RSU”)		483,927			2,395,678			(2,493,580	)		96,133			—		—			(1,769	)
Share-based compensation		—			—			2,032,226			—			—		—			2,032,226
Dividends paid		—			—			—			—			—		(5,021,806	)		(5,021,806	)
Net income and total comprehensive income		—			—			—			—			—		6,161,548			6,161,548

BALANCE, DECEMBER 31, 2019		42,301,304			80,267,136			36,121,869			(263,840	)		—		(162,638,900	)		(46,513,735	)
Shares issued on options exercised		150,406			1,149,183			(254,527	)		—			—		—			894,656
Shares issued under ESPP		36,060			188,230			—			—			—		—			188,230
Shares issued under RSU		56,425			301,671			(301,671	)		—			—		—			—
Shares repurchased and cancelled		(8,700	)		(15,909	)		—			—			—		(32,919	)		(48,828	)
Share-based compensation		—			—			2,958,164			—			—		—			2,958,164
Dividends paid		—			—			—			—			—		(5,013,177	)		(5,013,177	)
Net income and total comprehensive income		—			—			—			—			—		4,473,161			4,473,161

BALANCE, JUNE 30, 2020		42,535,495			81,890,311			38,523,835			(263,840	)		—		(163,211,835	)		(43,061,529	)
Shares issued for cash (Note 9(b))		6,272,727			68,999,997			—			—			—		—			68,999,997
Share issuance cost		—			(5,120,793	)		—			—			—		—			(5,120,793	)
Shares issued on options exercised		75,244			557,956			(106,708	)		—			—		—			451,248
Shares issued under Employee Stock Ownership Plan		30,508			165,662			—			—			—		—			165,662
Shares issued under RSU		263,725			1,483,080			(1,483,080	)		—			—		—			—
Share-based compensation		—			—			4,193,076			—			—		—			4,193,076
Dividends paid		—			—			—			—			—		(5,592,226	)		(5,592,226	)
Net income and total comprehensive income		—			—			—			—			590,038		4,504,563			5,094,601

BALANCE, DECEMBER 31, 2020		49,177,699		$	147,976,213		$	41,127,123		$	(263,840)		$	590,038	$	(164,299,498)		$	25,130,036

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ABSOLUTE SOFTWARE CORPORATION

Condensed Consolidated Statements of Financial Position

(Expressed in United States dollars unless otherwise noted) (Unaudited)

Three months ended
December 31,

Six months ended
December 31,

Notes

2020

2019

2020

2019

OPERATING ACTIVITIES

Net income

1,902,620

2,710,334

4,504,563

6,161,548

Items not involving cash

Depreciation of property and equipment

811,436

846,050

1,677,649

1,671,194

Amortization of right of use assets

(Note 6)

606,691

413,336

1,096,502

826,673

Amortization of contract acquisition assets

(Note 5)

2,632,390

2,103,603

5,172,455

4,352,898

Share-based compensation

(Note 9(h))

2,553,776

1,070,385

5,146,781

2,237,186

Deferred income taxes

(Note 11)

(594,560

)

(108,615

)

(78,560

)

(476,396

)

Interest

272,932

(100,165

)

244,269

(199,272

)

Unrealized foreign exchange loss

325,119

65,631

481,683

56,840

Change in non-cash working capital

Trade and other receivables

1,657,214

(555,165

)

6,702,588

5,962,202

Income tax receivable

(409,634

)

84,406

(433,522

)

599,146

Prepaid expenses and other

(1,205,136

)

808,900

(2,735,357

)

1,162,717

Contract acquisition assets incurred

(Note 5)

(3,586,236

)

(1,669,443

)

(6,425,857

)

(3,092,689

)

Trade and other payables

3,017,263

(1,251,078

)

1,753,183

(3,813,540

)

Income tax payable

(135,115

)

21,932

(359,264

)

35,592

Accrued warranty

(83,409

)

(290,085

)

(115,000

)

(210,585

)

Deferred revenue

5,644,921

(1,976,458

)

11,485,416

(5,622,269

)

CASH FROM OPERATING ACTIVITIES

13,410,272

2,173,568

28,117,529

9,651,245

INVESTING ACTIVITIES

Purchase of property and equipment

(147,523

)

(713,409

)

(1,093,394

)

(2,362,562

)

Proceeds from maturities of short-term investments

6,594,202

16,410,000

17,027,384

23,280,000

Purchase of short-term investments

—

(13,796,274

)

—

(25,581,776

)

CASH FROM (USED IN) INVESTING ACTIVITIES

6,446,679

1,900,317

15,933,990

(4,664,338

)

FINANCING ACTIVITIES

Dividends paid

(Note 9(g))

(3,011,850

)

(2,512,563

)

(5,592,226

)

(5,021,806

)

Issuance of common shares

(Note 9(b))

69,325,213

905,135

69,701,544

1,056,261

Cost of common share issuance

(5,120,793

)

—

(5,120,793

)

—

Payment of lease liabilities

(Note 8)

(746,693

)

(417,862

)

(1,207,653

)

(827,727

)

CASH FROM (USED IN) FINANCING ACTIVITIES

60,445,877

(2,025,290

)

57,780,872

(4,793,272

)

FOREIGN EXCHANGE EFFECT ON CASH

25,561

78,181

64,330

67,250

INCREASE IN CASH AND CASH EQUIVALENTS

80,328,389

2,126,776

101,896,721

260,885

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

51,295,830

16,824,648

29,727,498

18,690,539

CASH AND CASH EQUIVALENTS, END OF PERIOD

131,624,219

18,951,424

131,624,219

18,951,424

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